DuPont-IFF Exchange

DonJames

Anyone know how to record the DuPont-IFF exchange if you did not exchange all of your DuPont shares?

Tom Young

The first thing to understand that this is a tax-free exchange:

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    •         holders of DuPont common stock will recognize no income, gain or loss upon the receipt of N&B common stock in the Distribution;
 
     •         the tax basis of N&B common shares, including any fractional shares, received in the Exchange Offer in the hands of a holder of DuPont common stockholder who exchanges DuPont common stock for N&B common stock in the Exchange Offer will be, immediately after the Exchange Offer, the same as the tax basis of the shares of DuPont common stock exchanged therefor, and each DuPont stockholder’s holding period in the N&B common stock received in the Distribution will include the holding period of the DuPont common stock exchanged therefor; and
 
     •         the aggregate tax basis of the shares of DuPont common stock (excluding any DuPont common stock exchanged for N&B common stock in the Exchange Offer) and N&B common stock distributed in the Spin-Off, in the hands of each DuPont stockholder immediately after the Spin-Off, will be the same as the aggregate tax basis of the shares of DuPont common stock held by such holder immediately before the Spin-Off (excluding any DuPont common stock exchanged for N&B common stock in the Exchange Offer), allocated between such shares of DuPont common stock and N&B common stock in proportion to their relative fair market values immediately following the Spin-Off, and each DuPont stockholder’s holding period in the N&B common stock received in the Spin-Off will include the holding period of the DuPont common stock with respect to which the N&B common stock was received.
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So the essence of the accounting here is to Remove the tendered stock that was accepted, Add the new IFF stock (including the fraction) that was received, ensuring the new stock has the same basis and holding period as the accepted tendered stock, and then selling the fraction using the CIL cash as the "proceeds."

Hopefully you only had one lot of DuPont so one Remove, one Add and the Sell should get you squared away. 

I don't think any Quicken "wizard" is going to be able to do this for you so do your calculations outside of Quicken, back up your file and have at it.

I'm not sure how the proration factor (52.5307455 percent) plays out in practice, i.e., if they really are accepting that exact amount of DuPont, which would include a fraction of a share, or rounding that to the nearest whole share. Maybe when you figure that out you could post back in order to help other users who also tendered.

DonJames

Thanks for the detailed explanation. There is a lot here, will have to read it several times but it sounds like once I get my numbers right its three simple transactions. Only question left is you refer a couple of times to N&B common stock. Not sure I know what that is.

Thanks
dj

Tom Young

DuPont "split off" their Nutrition & Biosciences (N&B) division and those were the shares you received initially. Then those N&B shares were immediately exchanged for IFF stock.

q_lurker

To reinforce the importance of coordinating with the brokerage consider the following two hypotheticals.  And these are just my expectations on what might have taken place. 

Case 1 -- Investor tenders (offers) 25 shares for exchange.
This is an odd lot tender meaning less than 100 shares.
Tender = 25 shares
Acceptance ratio = 100%
DD Shares accepted = 25
Exchange ratio = 0.718
Shares due = 17.95
Shares actually received = 17 
Cash-in-lieu received = $118.75 (at an assumed $125/share rate)  
Quicken transactions

• Remove 25 shares DD
• Add 17.95 shares IFF at same basis and acquisition dates as DD shares
• Sell 0.95 shares IFF for $118.75 (cash-in-lieu amount received)

Case 2 -- Investor tenders 250 shares for exchange
This is not an odd lot tender
Tender = 250 shares
Acceptance ratio = 52.5307455%
DD Shares accepted = 131.3626862 shares (computed)
DD Shares accepted = 131 shares (actual)
Exchange ratio = 0.718
Shares due = 94.058
Shares actually received = 94 
Cash-in-lieu received = $7.25 (at an assumed $125/share rate)  
Quicken transactions

• Remove 131 shares DD
• Add 94.058 shares IFF at same basis and acquisition dates as DD shares (multiple adds if multiple lots removed)
• Sell 0.058 shares IFF for $7.25 (cash-in-lieu amount received)

Case 2 is not 10x Case 1 even though 10x as many shares were tendered.

YingDave

Pity anyone including me who had to wade through a 400 page document to digest to try to understand this transaction! In my case being in Australia, I did not get the prospectus until last week, 5 or 6 weeks after expiry so looks like I missed out tendering. Took me a while to even find the relevant dates in the prospectus! 

Been a little while since I went through one of these types but it is designed into Quicken "Wizard" as @Tom Young likes to call them. After you open the relevant account there is a button top left for "Enter Transaction". In the drop down list you would pick "Corporate Securities Spin-Off" which is non-taxable. So you enter one dialog box and in the background Quicken will enter several transactions based on the information in the dialog box. Quicken will also setup a new security for the spin off company IFF. Quicken will enter a 'Remove' transaction on DD, and 'Added' transaction on the new security IFF since it is non-taxable. It will also update prices based on your input in the dialog and move the cost base pro rata from DD to IFF. If it was taxable you would select "Dividend - Stock Dividend" which would enter a 'Return of capital' & a 'Buy' in the background I believe. No 'Sale' is recorded unless it says so on your brokerage statements and you received payment (eg. in-lieu of fractional shares as proposed by @q_lurker)?

However not all the information will be available until after completion including the traded prices on the first day after completion. I do not use automatic download for brokerage transaction, but if you enter the transaction above I hope the Broker download would correctly match up these transactions - but I cannot help you on that aspect. So the date entered on the transaction is the completion date not the propectus date of 31 Dec.2020, but the final numbers will be need to be clarified on your brokerage statements.

N&B is not really relevant to the Quicken transactions because it will be created and then consumed within the string of 4 or 5 corporate transactions. The net result is some of the DD Capital (both $ and # shares) will be taken out and same amount entered as cost base for IFF the new security, then only difference is whether it triggers a capital return or not. So the right Quicken 'Wizard' needs to be used to get the right outcome for Returns, IRR, and capital gains reporting because it's not classified as a Sale.

So you do not have to enter multiple transactions one dialog box in one transaction enters them all for you "Corporate Securities Spin-Off" for the full amount and fractions. Then a separate 'Sell' entered if you got paid for fractional amounts as those are realised gains (losses). Quicken Help file even has a page covering this - just search for "Spin-off"

Tom Young

@YingDave

You really can't use the spin-off wizard in this situation as it doesn't fit the facts.

In a spin-off you end up holding the same number of shares in the "parent" company as you did prior to the spin-off.  In a split-off event you end up owning a smaller number of parent shares than you did before the split-off.  There's no Quicken wizard for that.

DonJames

I looked at the spin off wizard (but did not enter the data and see what would happen). I think there is a problem there in that I did not exchange all my DD for IFF, only about half

DonJames

I think I got it right. Thanks to all for your help.

jermrev

Wouldn't using the corporate acquisition (stock for stock) wizard work, with IFF as the acquiror, for those who exchanged all their DD for IFF?

q_lurker

jermrev said:

Wouldn't using the corporate acquisition (stock for stock) wizard work, with IFF as the acquiror, for those who exchanged all their DD for IFF?

IF all the DD shares were converted to IFF shares, I believe you could use the Corporate Acquisition option.  I don't know how broad that base of users is since the acceptance ratio was in the 52% range (See my 'Cases' examples above).