Merger of Cigna and Express Scripts

TheDude

What is the proper way to record the Merger of Cigna (CI) and Express Scripts (ESRX).  

The merger
consideration consisted of $48.75 in cash and 0.2434 shares of stock of
the combined company per Express Scripts share.   I own ESRX in a TDAmeritrade account.  The transaction posts as:
1) sale of ESRX at $48.75; and
2) "Added" shares of Cigna (CI). 

While this seems correct for the ESRX shares, I believe the CI shares will reflect the wrong acquisition date for Cap Gains.  That is, I believe the CI shares will reflect the date added as opposed to the date of the original acquisition of ESRX shares.

So, what is the proper way to record this transaction? 

Tom Young

q_lurker

Ralph McGarity

Thanks q.lurker and Tom. I'm faced with the same situation. I did find a form 8937, but it didn't provide an example price/share for the new Cigna stock as these forms often do. I have only one lot and it has a cost basis below $15 per share, so I think I just need to use the Lot 1 calculation highlighted in green in your spreadsheet. Is that consistent with your understanding?

q_lurker

Ralph McGarity said:

Thanks q.lurker and Tom. I'm faced with the same situation. I did find a form 8937, but it didn't provide an example price/share for the new Cigna stock as these forms often do. I have only one lot and it has a cost basis below $15 per share, so I think I just need to use the Lot 1 calculation highlighted in green in your spreadsheet. Is that consistent with your understanding?

I am disappointed Cigna did not include better info in their 8937:  https://www.cigna.com/assets/docs/about-cigna/form8937.pdf

Yes, if your cost basis in ExpressScripts was about $15/sh, you would (by my methodology) be selling that lot for basis+cash received.  My second step would be XOut that prior total basis (= your new Cigna basis).  Step three as an Add Shares of Cigna, including fractional shares with that same basis from ESRX.  Final step -- Sell any fractional share of Cigna from the deal for the Cash-in-lieu received.  

Ralph McGarity

Ralph McGarity said:

Thanks q.lurker and Tom. I'm faced with the same situation. I did find a form 8937, but it didn't provide an example price/share for the new Cigna stock as these forms often do. I have only one lot and it has a cost basis below $15 per share, so I think I just need to use the Lot 1 calculation highlighted in green in your spreadsheet. Is that consistent with your understanding?

Thank you for your advice, and for also the many times you've helped me in the past.

Ralph

joev929

 I am on Quicken Premier for Windows 2019.  I have reviewed the comments regarding on how to enter this transaction in Quicken   I also re-created the spreadsheet from the comments.  However, I do not seem to be getting what I feel are correct results.  I must have an error somewhere in the spreadsheet.  I owned 374 shares (1 lot) from 4/2/2012 at a basis cost of $8199.22 (21.923/share).
This is the second time I have had this type of sale (stock plus cash) since 2012.  Why doesn't Quicken add this as an option making everyone's life easier.  I see these sales all the time in the financial news.  
Trying to track these even in spreadsheets is a nightmare.  FYI I own Express Scripts as a result of: Merck buying Medco, then Merck spinning off Medco, then Medco and Express Scripts merging (stock plus cash), now this transaction.  Thank you for any support!

q_lurker

 (I get frustrated when moderators close posts that don't need to be closed, thus fragmenting discussions. Sigh.  For reference: https://getsatisfaction.com/quickencommunity/topics/merger-of-cigna-and-express-scripts)

Based on my spreadsheet, and my assumed FMV of $182.185 / CI Share after merger, I would have 

1)  Sell 374 shares ESRX for $70.67/share grossing $26,431.72.  That is, 48.75 * 374 + 8199.22.  That transaction in Quicken should yield capital gains of $18,232.50 (= 48.75 * 374, all the cash you received is treated as cap gains.

2)  Enter an XOut transaction removing $8,199.22 from the account.  I choose to specify the transfer account as the same account used for the entry.  If the account in Quicken is [Brokerage], specify [Brokerage] as the account int which the transfer is being made.  The result of that is that $8,199.22 is removed from the account, but it is NOT actually deposited back into the account.  You cash balance in the account is reduced by the $8,199.22 leaving the $18,232.50

3)  Enter an Add Shares transactions adding in 91.0316 shares of Cigna with a basis if $8,199.22 and an acquisition date of 4/2/12.

4) Enter a Sale of 0.0316 shares of Cigna for the 'cash-in-lieu' amount your brokerage shows you received.  That should be about $5.50-$6.00. 

After those four transactions, your account should show:

• 0 shares ESRX
• 91 shares CI (Cigna)
• about $18,238 in cash  

 HTH

Note: This conversation was created from a reply on: Cigna Purchase of Express Scripts.

Tom Young

joev929

q.lurker and Tom, Thank you so much for your help.  I see where my error was thanks to you both.  Have a great day and again, thank you.......joev929

389EFR

I too am dealing with the ESRX/CI merger.  How do you deal with the 1.45% of the cash distribution that was provided by Express Scripts? It would seem to me that this is return of capital and would have to be entered as such somewhere.  This isn't mentioned in Tom's or q.lurker's previous descriptions of how to enter the transactions into Quicken.  Is this something that I need to adjust for or is it a red herring?  Thanks

Tom Young

@389EFR

JEEZE!  Was that paragraph referring to the 1.45% of the cash distribution that was provided by Express Scripts stuck in there all along??? Or is this a new version of the Form 8937?  I can't believe I missed that in the first go-around.

Actually, the 1.45% of the cash would not be considered a "return of capital", it's considered a sale of a small portion of the Express Scripts stock tendered, with possible gain or loss recognized.  The Dell acquisition of EMC has a similar structure and required two different calculations to get it all figured out. 

I'll have to get back into this one in the next day or two to refine things.

389EFR

Did a little more digging and found that the 1.45% is called a "deemed redemption" and you get to claim a basis for it and take a gain or loss.  The basis is equal to the redemption amount times the original cost basis divided by the fair market value just before the sale.  Now the question is how to get it into Quicken! 

Tom Young

Getting it into Quicken won't be a problem, you just need to do all the calculations outside of Quicken and then work backwards from "outcomes" to "needed entries."

Mechanically, in your spreadsheet, you have two calculations. 

For each lot of Express Scripts tendered you break the lot into two pieces.  One piece - the redemption piece - has approximately 0.764079% of the lot's basis, (the actual percentage you derive is based on your per share FMV of Cigna; I used $179.80), and the other piece - the Section 351 piece has the remainder. 

The redemption lot gets gain or loss calculated based on a proceeds per share of $0.706875, the 1.45% of cash contributed by Express Scripts.

The Section 351 gain, (or $0 for loss lots), is calculated against the remainder of the cash - $48.04313 per share - plus the FMV of the Cigna shares, and the basis for the Cigna shares is derived in the fashion required for Section 351 transactions.

At that point you are in the same position you'd be in if it was ONLY a Section 351 transaction.  You know the cash received, you know your gain, (maybe a loss due to the redemption), you know your basis in the Cigna shares.

At that point it should be pretty much the same process as described above when the conversation involved ONLY the Section 351 gain.

Peg_McKee

First many thanks to all for the 351 explanation!  My question is about the "deemed redemption".  Tom Young states "the redemption piece has approximately 0.764079% of the lot's basis".

Would Tom (or anyone) please spell out the how  0.764079% is calculated--assuming the FMV of $179.80--as Tom does.  Many thanks!

Peg_McKee

More from Peg M:
My brokerage (Vanguard) calculated my gain from Cigna ESRX merger--and it was the same as I got using Tom's & Lurker's but apparently without the 1.45% adjustment. I think they used FMV Cigna $182.19. 

I made a practice brokerage account in Quicken and used suggestions from each as to how to enter the transactions.  Glad I did since it took a couple of tries.

So that Cigna shows up in Holdings on the right date, when you "Add" the Cigna shares, the transaction date should be 12/24 but the date acquired should be date of first purchase of ESRX (2014 in my case). That way Cigna doesn't show in your Holdings before 12/24 but the date acquired is used for calculating gains. My version of Quicken won't allow adding shares at zero cost basis.

I loved the tip of transferring cash back to same account as a way of removing it. 

As for the 1.45% which I still don't understand how to account for it, so I'll ask Vanguard.  
Best, Peg M