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Recording and Accounting for the Time Warner / AT&T Cash and Stockl Merger

unknown

I'm sure this is on the mind or all Time Warner and Quicken users. HOW do we record and account for the cash and stock merger of AT&T and Time Warner. The program does not even have an option for this type of transaction (2017 Premier R15.15 Build: 26.1.15.15). None of the few cash and stock mergers I found online or in community CLEARLY explain how to process similar transactions.

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mshiggins

It's a little too soon to enter the merger, the deal has not closed yet.

unknown

It closed last Thursday. AT&T stock and the cash have already been distributed to Time Warner owners.

mshiggins

It closed last Thursday. AT&T stock and the cash have already been distributed to Time Warner owners.

Got it. Apparently the article I found was out of date. Do you have a link to the terms of the merger handy?

mshiggins

It closed last Thursday. AT&T stock and the cash have already been distributed to Time Warner owners.

Here is a link to the ATT page that specifies the terms of the deal:

http://about.att.com/story/att_comple...

I would wait until they issue the 8937 before entering the info into Quicken.

Sherlock

It closed last Thursday. AT&T stock and the cash have already been distributed to Time Warner owners.

http://about.att.com/story/att_completes_acquisition_of_time_warner_inc.html

q_lurker

The program does not even have an option for this type of transaction (2017 Premier R15.15 Build: 26.1.15.15).

Frankly, I see the process as difficult to process and rather user dependent. Combine that with the relative rarity of these types of transactions and you have the basis for it not being programmed in as a basic action. I'll go a step further and also add there there has been debate about the "best" way to handle these cases. All that said, I would love to see a more canned version of this transaction.

None of the few cash and stock mergers I found online or in community CLEARLY explain how to process similar transactions.

Here is as clear as I could make it for another similar transactions (and I have posted similar write-ups for for dozens of similar transactions in the past). The inability to find such info I attribute to weakness in the internal search engine for this site.

https://getsatisfaction.com/quickencommunity/topics/how-do-i-record-the-analog-devices-inc-cash-and-...

So my process comes down to handling each lot separately based on the your current cost basis for that lot.

So far with little research on my part, all I have found has been the following statement. I have not sought out the prospectus information for this deal.

Under the terms of the merger, Time Warner Inc. shareholders received 1.437 shares of AT&T common stock, in addition to $53.75 in cash, per share of Time Warner Inc.

I usually like to see the Form 8937 that gets filed before committing too much to the web. At such time as I see more specifics and have time myself. I'll put together something similar for this transaction.

(Caveat 1: I am not a TW or AT&T shareholder at this time, so I have no direct interest in this deal.)
(Caveat 2: I am not a tax pro, CPA, broker, financial professional, or otherwise qualified to give advice on such matters. I am a nameless, faceless person with a PC and an internet connection. Do your own die diligence and consult qualified professionals and persons you know to be knowledgeable.)

unknown

It closed last Thursday. AT&T stock and the cash have already been distributed to Time Warner owners.

I'm sure it is the first best advice as you both point out is to wait on the 8937 which I will heed. And, in the meantime, experiment with some figures one step at a time using q.lurker's guidance. Thank you.

unknown

Thank you for your guidance and caveats. My ownership comprises three lots with three varying cost basis.

Tom Young

One other problem with trying to automate the accounting entries for cash plus stock deals is that there really is no "one size fits all" mechanism that will work for every single deal you might encounter. The appropriate accounting depends very much on how the deal is structured and Quicken simply doesn't have or know this information.

To further complicate matters, company management frequently doesn't give clear or complete guidance, or gives conditional guidance that depends on how the IRS views certain transactions that occurred in the deal's execution.

Karen Vierra

re: Quicken Deluxe 2018 R9.34

I'm connected to RJ Investments. The proceeds from the (Category) Sale/Redemption, (Activitiy Type) Merger of TIME WARNER INCORPORATED NEW (TWXOLDDD) did not post to my Investment Cash Account in Quicken. So, in order to have the Investment Cash Account in Quicken reconcile with what RJ Investments is reporting, I created a manual deposit into the Quicken Account. This is not an ideal solution, I'd have much rather had the transaction posted during One Step Update. Is it even feasible to ask to have this fixed?

q_lurker

re: Quicken Deluxe 2018 R9.34

I'm connected to RJ Investments. The proceeds from the (Category) Sale/Redemption, (Activitiy Type) Merger of TIME WARNER INCORPORATED NEW (TWXOLDDD) did not post to my Investment Cash Account in Quicken. So, in order to have the Investment Cash Account in Quicken reconcile with what RJ Investments is reporting, I created a manual deposit into the Quicken Account. This is not an ideal solution, I'd have much rather had the transaction posted during One Step Update. Is it even feasible to ask to have this fixed?

My general opinion brokerages are not totally reliable for getting these transactions into Quicken. Also, they may not get it right in their own systems - at least on first go around. I would always encourage the user know what is taking place and to do things right on their own before accepting (or rejecting) brokerage downloads.

It is usually best to work these things out on paper or spreadsheet before getting into the Quicken side of things. That exercise should give the user the ballpark to recognize if the brokerage is close.

Personally, I would delete any associated transactions from the broker unless I had proven them to be accurate and acceptable to my needs.

hmday

I recorded a stock split for TW followed by a Corporate Acquisition stock for stock (TW acquired by T). Then I entered a deposit for the cash and categorized it as CG.

mshiggins

The program does not even have an option for this type of transaction (2017 Premier R15.15 Build: 26.1.15.15).
Frankly, I see the process as difficult to process and rather user dependent. Combine that with the relative rarity of these types of transactions and you have the basis for it not being programmed in as a basic action. I'll go a step further and also add there there has been debate about the "best" way to handle these cases. All that said, I would love to see a more canned version of this transaction.
None of the few cash and stock mergers I found online or in community CLEARLY explain how to process similar transactions.
Here is as clear as I could make it for another similar transactions (and I have posted similar write-ups for for dozens of similar transactions in the past). The inability to find such info I attribute to weakness in the internal search engine for this site.

https://getsatisfaction.com/quickencommunity/topics/how-do-i-record-the-analog-devices-inc-cash-and-...

So my process comes down to handling each lot separately based on the your current cost basis for that lot.

So far with little research on my part, all I have found has been the following statement. I have not sought out the prospectus information for this deal.
Under the terms of the merger, Time Warner Inc. shareholders received 1.437 shares of AT&T common stock, in addition to $53.75 in cash, per share of Time Warner Inc.
I usually like to see the Form 8937 that gets filed before committing too much to the web. At such time as I see more specifics and have time myself. I'll put together something similar for this transaction.

(Caveat 1: I am not a TW or AT&T shareholder at this time, so I have no direct interest in this deal.)
(Caveat 2: I am not a tax pro, CPA, broker, financial professional, or otherwise qualified to give advice on such matters. I am a nameless, faceless person with a PC and an internet connection. Do your own die diligence and consult qualified professionals and persons you know to be knowledgeable.)

I was just thinking it would be helpful to compile a list of merger posts.

milesaweigh

I recorded a stock split for TW followed by a Corporate Acquisition stock for stock (TW acquired by T). Then I entered a deposit for the cash and categorized it as CG.

This will not properly provide the cost basis of T stock received in the acquisition

q_lurker

The program does not even have an option for this type of transaction (2017 Premier R15.15 Build: 26.1.15.15).
Frankly, I see the process as difficult to process and rather user dependent. Combine that with the relative rarity of these types of transactions and you have the basis for it not being programmed in as a basic action. I'll go a step further and also add there there has been debate about the "best" way to handle these cases. All that said, I would love to see a more canned version of this transaction.
None of the few cash and stock mergers I found online or in community CLEARLY explain how to process similar transactions.
Here is as clear as I could make it for another similar transactions (and I have posted similar write-ups for for dozens of similar transactions in the past). The inability to find such info I attribute to weakness in the internal search engine for this site.

https://getsatisfaction.com/quickencommunity/topics/how-do-i-record-the-analog-devices-inc-cash-and-...

So my process comes down to handling each lot separately based on the your current cost basis for that lot.

So far with little research on my part, all I have found has been the following statement. I have not sought out the prospectus information for this deal.
Under the terms of the merger, Time Warner Inc. shareholders received 1.437 shares of AT&T common stock, in addition to $53.75 in cash, per share of Time Warner Inc.
I usually like to see the Form 8937 that gets filed before committing too much to the web. At such time as I see more specifics and have time myself. I'll put together something similar for this transaction.

(Caveat 1: I am not a TW or AT&T shareholder at this time, so I have no direct interest in this deal.)
(Caveat 2: I am not a tax pro, CPA, broker, financial professional, or otherwise qualified to give advice on such matters. I am a nameless, faceless person with a PC and an internet connection. Do your own die diligence and consult qualified professionals and persons you know to be knowledgeable.)

Could be doable - with respect to these cash-to-boot type of mergers. I'll take that under advisement. No promises.

You may recall on the QLC site where we could create our own tags (aka categories) for posts, we had a tag for stock mergers. There were aspects then soooo much better than get-sat.

hmday

I recorded a stock split for TW followed by a Corporate Acquisition stock for stock (TW acquired by T). Then I entered a deposit for the cash and categorized it as CG.

I think it will....your costs basis is going to be the same as your original purchases of the TW (both date and price). Take a look at your brokerage account where the positions are held.

milesaweigh

I recorded a stock split for TW followed by a Corporate Acquisition stock for stock (TW acquired by T). Then I entered a deposit for the cash and categorized it as CG.

Yes, in general, this works and does maintain the original cost basis. But I think further evaluation is needed because I am not sure the cash portion is always a capital gain if there is a overall loss in the buyout. Need to see the Form 8937 filing to know how it's reported to the IRS.

q_lurker

I recorded a stock split for TW followed by a Corporate Acquisition stock for stock (TW acquired by T). Then I entered a deposit for the cash and categorized it as CG.

Whether the cash received ($53.75 / TWX share) is considered capital gains depends on the price paid for those shares. If there are multiple lots, each lot may need to be treated and evaluated separately. Below a certain basis price, the cash is all capital gains and hmday's approach may be reasonable. Above a different basis value, none of the cash received is treated as cap gains; all of it is used to reduce the basis of the newly received AT&T shares. In between is a linear transition where some is cap gains and the balance is basis adjustment.

I will hold off with my opinion on those two price points until I see more definitive info from AT&T, i. e., their IRS Form 8937 for the deal.

John Prewitt

It closed last Thursday. AT&T stock and the cash have already been distributed to Time Warner owners.

I have been using Quicken for over 20 years and have tried other packages and none of them can handle mergers or spin offs at all. They can handle simple spits. I have been using spreadsheets to aid in determining which Add/Remove shares transactions are needed to reflect the capital gains for the cash and the cash-in-lieu portions of the merger as well as the cost basis for the new AT&T shares.

In my portfolio the TWX shares are all long term so it is simple. Remember to allocate the cost basis along short/long term lines.

I used the following steps.

1) Remove the original shares at the date they were purchased using the same cost they were purchased with. This should show a zero capital gains.
2) For the cash portion, Add the original number of shares at the cost basis shown by your brokerage house, using the date of the last lot.
3) Sell these shares as of June 15, 2018. In Q2018, the Tax Schedule should show the capital gains of the cash portion. It should match that of the brokerage house.
4) Compute the number of new AT&T shares by multiplying the number of TWX shares by share ratio of 1.437. You will have a whole number of shares and a fractional number of shares.
5) Take the cost basis of the TWX shares before the merger and subtract the cost basis of the cash portion to obtain the new cost basis for the AT&T shares. Some of the cost basis will be allocated to the fractional shares and the remainder to the whole shares. The capital gain report from your brokerage house will show the allocations.
6) Add the fractional shares using the cost basis allocated by the brokerage house, using the date of the last lot.
7) Sell the fractional shares as of June 15, 2018 or as of the date shown by the brokerage house. The price should be about $32.26/shares. This value depends upon when your brokerage house actually sold the fractional shares. In Q2018, the Tax Schedule should show the capital gains of the cash-in-lieu portion. It should match that of the brokerage house.
8) Take the cost basis of the AT&T shares compute in step 5 and subtract the cost basis of the cash-in-lieu portion. This will the cost basis of the whole shares.
9) Add the number of new AT&T whole shares using the cost basis computed in step 8. This should match your brokerage house values. Use the date that the TWX shares were obtained.

Over the pass several decades I have used Move Share In/Out with older versions of Quicken and now Add/Remove shares with Q2018. It's the only way to get Quicken to match the brokerage house.

John Prewitt

I recorded a stock split for TW followed by a Corporate Acquisition stock for stock (TW acquired by T). Then I entered a deposit for the cash and categorized it as CG.

It always seems that the brokerage house has more information than the rest of us so I look to see how they handle the cash portion. All my stocks are long term and they allocate a portion of the cost basis to the cash and I see a long term capital gain in the brokerage house's on-line capital gain report. They always allocate some cost basis to the cash-in-lieu and it too shows up as a long term capital gain. The remaining cost basis is allocated to the new AT&T shares.
In short, try to match what the brokerage house does.
Trust but verify!

Tom Young

I recorded a stock split for TW followed by a Corporate Acquisition stock for stock (TW acquired by T). Then I entered a deposit for the cash and categorized it as CG.

Over at the TurboTax site I've answered questions about the proper tax accounting for cash plus stock transactions for several years. Based on this it does seem like up until 2 or 3 years ago most brokers were simply presenting the cash portion of the transaction as the "proceeds" on the 1099-B with no indication of the correct (derived) basis to use for reporting.

However it's clear that more recently at least some brokers are reporting these transactions "correctly" on the 1099-B, in a summary fashion, meaning that the user can simply enter the proceeds and cost basis reported on the 1099-B directly onto Form 8949. It don't know what the impetus is for this change - it might be that brokers are simply tired of answering questions from their customers along the lines of "how do I enter this in my income tax return?" - and it's not clear that all brokers are doing this.

As many - probably most - cash plus stock deals do require a lot-by-lot calculation of gain and the resulting basis in the stock received, if you want to keep the detail of your lots' basis properly stated you are forced to do the lot-level calculations on your own unless that detail is available from the broker too.

q_lurker

It closed last Thursday. AT&T stock and the cash have already been distributed to Time Warner owners.

As an FYI, the AT&T website has been updated today (Fri 6/28), https://investors.att.com/stockholder-services/timewarner-stockholders, but the relevant information I have been waiting for is marked as "coming soon". No definition of "soon" provided.

Bill Basden

It closed last Thursday. AT&T stock and the cash have already been distributed to Time Warner owners.

John - thanks for that explanation.

Could you give a little more detail on steps 1, 2 and 3? I know I'm missing something because it seems like step 2 is just reversing step 1. I know that I need to come up with a capital gain that is value of the new AT&T stock on 6/15/18 plus the cash received less my original TWX basis. Is the amount that I sell it for equal to the value of the new AT&T stock on 6/15/18 plus the cash received?
The steps after that all make sense to me.

Tom Young

It closed last Thursday. AT&T stock and the cash have already been distributed to Time Warner owners.

@ Bill Basden:

John Prewitt's method sounds similar to the method I use in these stock plus cash acquisitions that require a lot-by-lot calculation, that specify no losses may be recognized, and limit any gain to the lesser of cash received or the gain you obtain when you simply treat the stock plus cash received as "proceeds" minus your basis in the stock tendered.

First and foremost though, if you have multiple lots you must make your calculations outside of Quicken. There's no "shortcut" that avoids that if you want accuracy. So you list out, presumably in a spreadsheet, each lot:

its date acquired, (it's best to list them in chronological order, oldest first)
its basis,
how much cash was received for the lot,
how many "new" shares were received for those shares,
the total "proceeds" received for that lot which is (number of shares received x per share fair market value) + cash, and
the gain for each lot which is the lesser of cash receive or the gain based on "proceeds" minus basis.

If you have a loss for a particular lot you enter $0 in its "gain" column.

On the same line for each listed lot you can also calculate your basis in "new" shares received which is: old basis - cash received + gain recognized for that lot, (obviously 0 for loss lots.)

Now summarize your gains, if any, into short term and long term gains. Using only the cash received for your short term holdings, derive a basis to use against that cash to come to the short term gain you've determined. Likewise, using only the cash received for your long term holdings, derive a basis to use against that cash to come to the long term gain you've determined.

If you've done all this then you're ready to make your entries into Quicken so:

Make one entry to Remove all old shares
Make one entry to Add back your old short term shares using any date that makes the new "lot" short term and using a per share cost that comes to the derived basis determined above.
Make one entry to Add back your old long term shares using any date
that makes the new "lot" long term and using a per share cost that
comes to the derived basis determined above.
Sell your short term and long term holdings for the cash you received for each "lot'.

At this point your cash (before cash in lieu) is properly stated in Quicken and your long term and short term gains are properly stated.

Now do a series of Add actions to establish each lot of "new" shares using an appropriate "acquired" date (same as date of lot tendered) and an appropriate per share cost to come to the basis you calculated for each lot.

Then you sell whatever fractional shares you "should have" received for the cash in lieu, recognizing a gain or loss as appropriate.

If you have a lot of shares then it's a fair amount of work, though using the power of Excel you can pretty much reduce the Excel "entry" effort to listing out the date of acquisition, number of shares and per share cost of each of your "old" shares.

Bill Basden

It closed last Thursday. AT&T stock and the cash have already been distributed to Time Warner owners.

Hi Tom,

Thanks for that. I should have realized that that purchase price would just be a plug to get the gain. Fortunately for me there is just one lot and its long term. I've already calculated the gain and new basis so the entries should be simple.

q_lurker

AT&T has now published their information for taxpayers (Form 8937 et al.)
https://investors.att.com/stockholder-services/timewarner-stockholders

For their view, they established a fair market value for the AT&T shares distributed to the TWX shareholders at $32.54/share. Considering the 1.437 shares and the $53.75 in cash, that means each TWX shareholder received $100.51 for each TWX share (53.75 cash + 46.76 in AT&T stock).

From that data, I apply the following presented in spreadsheet form:

The process in Quicken (my approach) becomes
For Each TWX lot ---
1) Sell Shares of TWX
2) Buy Shares of AT&T
3) Remove Shares of AT&T (just bought because the acquisition date is wrong)
4) Add Shares of AT&T (with the correct acquisition date)

When all lots done
5) Sell fractional share of AT&T cor cash-in-lieu amount received. Per the cited documents, that may be at 32.80/share or it could be at some other rate.

Sherlock

AT&T has now published their information for taxpayers (Form 8937 et al.)
https://investors.att.com/stockholder-services/timewarner-stockholders

For their view, they established a fair market value for the AT&T shares distributed to the TWX shareholders at $32.54/share. Considering the 1.437 shares and the $53.75 in cash, that means each TWX shareholder received $100.51 for each TWX share (53.75 cash + 46.76 in AT&T stock).

From that data, I apply the following presented in spreadsheet form:

The process in Quicken (my approach) becomes
For Each TWX lot ---
1) Sell Shares of TWX
2) Buy Shares of AT&T
3) Remove Shares of AT&T (just bought because the acquisition date is wrong)
4) Add Shares of AT&T (with the correct acquisition date)

When all lots done
5) Sell fractional share of AT&T cor cash-in-lieu amount received. Per the cited documents, that may be at 32.80/share or it could be at some other rate.

I think the Lot 3 (no gain) style may be simplified to:
1) Return of Capital for Real Cash received
2) Remove Shares of TWX
3) Add Shares of AT&T

q_lurker

AT&T has now published their information for taxpayers (Form 8937 et al.)
https://investors.att.com/stockholder-services/timewarner-stockholders

For their view, they established a fair market value for the AT&T shares distributed to the TWX shareholders at $32.54/share. Considering the 1.437 shares and the $53.75 in cash, that means each TWX shareholder received $100.51 for each TWX share (53.75 cash + 46.76 in AT&T stock).

From that data, I apply the following presented in spreadsheet form:

The process in Quicken (my approach) becomes
For Each TWX lot ---
1) Sell Shares of TWX
2) Buy Shares of AT&T
3) Remove Shares of AT&T (just bought because the acquisition date is wrong)
4) Add Shares of AT&T (with the correct acquisition date)

When all lots done
5) Sell fractional share of AT&T cor cash-in-lieu amount received. Per the cited documents, that may be at 32.80/share or it could be at some other rate.

@Sherlock: That is certainly a possibility. I am always cautious about the Return of Capital transaction because it seems to bring along some unintended consequences, but especially for a position being closed out, it could be very workable. I would want to cross-check various performance measures after taking that approach.

The lot 3 (no gain) circumstances tend to be more rare as this means the original shareholders are taking a loss on the deal, and the deal may not be overly attractive to the big-wigs making the decisions.

Tom Young

AT&T has now published their information for taxpayers (Form 8937 et al.)
https://investors.att.com/stockholder-services/timewarner-stockholders

For their view, they established a fair market value for the AT&T shares distributed to the TWX shareholders at $32.54/share. Considering the 1.437 shares and the $53.75 in cash, that means each TWX shareholder received $100.51 for each TWX share (53.75 cash + 46.76 in AT&T stock).

From that data, I apply the following presented in spreadsheet form:

The process in Quicken (my approach) becomes
For Each TWX lot ---
1) Sell Shares of TWX
2) Buy Shares of AT&T
3) Remove Shares of AT&T (just bought because the acquisition date is wrong)
4) Add Shares of AT&T (with the correct acquisition date)

When all lots done
5) Sell fractional share of AT&T cor cash-in-lieu amount received. Per the cited documents, that may be at 32.80/share or it could be at some other rate.

Yeah, I agree with q.lurker's hesitation to use Return of Capital transactions for the exact same reasons. And although the Return of Capital transaction would work for loss lots that just makes the whole instruction set more complex when you're trying to explain "what to do" to users.

Although q.lurker's method works just fine to get you to the correct answer I've always used a different method that typically results in fewer entries and, to my way of thinking, somehow is more in line with how people think about these kinds of transactions. That's almost certainly because I came at this over in the TurboTax forum where the question almost always is "how do I record this in my income taxes?"

So my spreadsheet picture for the above looks like this:

So this comes down to a Remove of all the stock, an Add of all the stock at a derived basis and then a Sold for the cash received, followed by 3 Adds for the new lots. The Proceeds and Basis number get entered directly into the income tax return (assuming that's what the 1099-B is reporting as basis.)

unknown

It closed last Thursday. AT&T stock and the cash have already been distributed to Time Warner owners.

I am carrying an unrealized loss prior to the merger. I was thinking of treating the cash received to be a return of capital at cost value? If all of the cost is not covered in the cash received the remaining balance of the cost value going toward the new cost value of the AT&T stock. (This maybe too simplified answer as I have yet to map it out in a spreadsheet with each of my lots).