T-Mobile/Sprint merger

Greg_the_Geek

Does anyone have any advice on how to record the T-Mobile/Sprint merger?

Tom Young

"It is intended that the merger will qualify as a “reorganization” within the meaning of Section 368(a) of the Code, and that U.S. holders of Sprint common stock will not recognize gain or loss for United States federal income tax purposes, except with respect to the receipt of cash in lieu of fractional shares of T-Mobile common stock."

There were, of course, qualifiers to that broad statement if certain things happened or didn't happen, but clearly the original intent was a tax-free exchange of stock, except for the fractional share.

Greg_the_Geek

I think I have the exchange of shares recorded correctly but I'm not sure how to handle cash in lieu from the fractional share.

Tom Young

"Under the terms of the transaction, Sprint shareholders will receive a fixed exchange ratio of 0.10256 T-Mobile shares for each Sprint share,"

Multiply the number of shares tendered times .10256 for the number of shares of T-Moblie received, including the fraction of a share.  The basis and holding period for the old lot carries over to the new shares. Divide the basis by the number of shares received, including the fraction, and you've got your new basis per share.  Multiply the new basis per share times the fraction of a share you "received" and you've got the cost basis for that fraction.  Sell that fraction using the CIL as the proceeds.

This is easy to do if you only have one lot, but if you have multiple lots then each lot can create a fractional share so where do you "pull from" to come up with the fraction of a share sold and its related basis?  There are at least a couple of different ways of doing that so you might look at how your broker handles it

Greg_the_Geek

Thanks @Tom Young, I've got it recorded correctly now.