corporate merger, cash and stock

Joseph
Joseph Member ✭✭
I hold 16 shares of company B stock. Company A acquired for $66 and 2.323 per share. How to enter this into Quicken? The transaction download wasn't even close. There was also cash in lieu payment (that I think is best handled as return of capital). Any ideas on entering the cash and stock portion of this?

Best Answers

  • q_lurker
    q_lurker SuperUser ✭✭✭✭✭
    Accepted Answer
    My mistake.  I had not updated the "Quicken Transactions" portion.  I've now pasted in a corrected picture in my above post.  

    But just to to iterate some aspects, my choice of $46.37 as the fair market value was my choice (avg of hi and lo prices the day after).  You, your broker and Marvell (form 8937) may choose a different values.  Proceed cautiously.  There is no one right value.

    The next question is what price did you pay for each lot.  Based on my $46.37 choice, did you pay less than $107.718/share, more than $173.718/share, or in-between those two value?  That answer dictates what you now Sell the Inphi shares for.

    Having sold the shares (with probably some capital gains impact), you now buy the Marvell shares.  After that purchase, you should have the right cash in the account. ($66/Inphi share).

    Selling the fractional Marvell share for cash-in-lieu will add a bit more cash into the account.

    My final steps not listed above, I Remove Shares of Marvell and then Add Shares back in with the same basis and the original (Inphi) acquisition dates, so that future cap gains holding periods and information is correct.  

    Sorry for the confusion.
  • Tom Young
    Tom Young SuperUser ✭✭✭✭✭
    edited May 20 Accepted Answer
    @q_lurker 's Excel spreadsheet comes up with the correct number (given the assumptions) but you should not do the "Buy" actions here as that resets the holding period for the new shares while the typical cash plus stock deal has the holding period for the new shares hold over from the tendered lots.  In other words, use ADD actions instead of BUY actions.  In the ADD actions you'll use enter the original purchase dates in the "Date acquired" boxes.
    I have an Excel spreadsheet for these typical "boot" deals that's different from @q_lurker 's and oriented towards entries needed in an income tax return.  Using his numbers (changed one date to make a lot short term) I come to the same dollar answers:
    I also have a different sequence of Quicken entries that keys off the DERIVED BASIS number for IPHI.
    1. Do a REMOVE action for all shares of IPHI.
    2. Do an ADD action for 100 shares of IPHI at a total cost of $6,600.00 and a date that makes the lot short term.
    3. Do an ADD action for 200 shares of IPHI at a total cost of $3,328.25 and a date that makes the lot long term.
    4. Sell the IPHI shares for $19,800.00.
    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 three Add actions - two for the long term lots of 200 shares and one for the 100 share short term lot - 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.  (The "Basis in MRVL column above.)
    The enter a Sold action for the fractional share using the Cash in Lieu as the proceeds and recognizing the gain or loss.

Answers

  • q_lurker
    q_lurker SuperUser ✭✭✭✭✭
    Your question can best be answered if you provide the companies.  It saves us all a bunch of hypotheticals and guesses.
  • Joseph
    Joseph Member ✭✭
    Inphi was acquired by Marvell
  • q_lurker
    q_lurker SuperUser ✭✭✭✭✭
    edited May 20
    I happened to own Inphi at the time.  Generally I encourage waiting until the Form 8937 is filed.  The below snip of my Excel spreadsheet summarizes my approach which matches with my broker's info (uses average of Hi and lo cost after merger, YMMV).  My basic Quicken transactions are summarized at the bottom of the snip

     
  • Joseph
    Joseph Member ✭✭
    Thank you for this. I don't understand how step 1 works for you. In my brokerage, I received cash at a value of $66 per share, so I have to somehow get cash into the account in exchange for the acquired company shares. The value of $8,036.80 isn't even close to the value of $19,800 - how did you balance out the cash discrepancy?
  • q_lurker
    q_lurker SuperUser ✭✭✭✭✭
    Accepted Answer
    My mistake.  I had not updated the "Quicken Transactions" portion.  I've now pasted in a corrected picture in my above post.  

    But just to to iterate some aspects, my choice of $46.37 as the fair market value was my choice (avg of hi and lo prices the day after).  You, your broker and Marvell (form 8937) may choose a different values.  Proceed cautiously.  There is no one right value.

    The next question is what price did you pay for each lot.  Based on my $46.37 choice, did you pay less than $107.718/share, more than $173.718/share, or in-between those two value?  That answer dictates what you now Sell the Inphi shares for.

    Having sold the shares (with probably some capital gains impact), you now buy the Marvell shares.  After that purchase, you should have the right cash in the account. ($66/Inphi share).

    Selling the fractional Marvell share for cash-in-lieu will add a bit more cash into the account.

    My final steps not listed above, I Remove Shares of Marvell and then Add Shares back in with the same basis and the original (Inphi) acquisition dates, so that future cap gains holding periods and information is correct.  

    Sorry for the confusion.
  • Tom Young
    Tom Young SuperUser ✭✭✭✭✭
    edited May 20 Accepted Answer
    @q_lurker 's Excel spreadsheet comes up with the correct number (given the assumptions) but you should not do the "Buy" actions here as that resets the holding period for the new shares while the typical cash plus stock deal has the holding period for the new shares hold over from the tendered lots.  In other words, use ADD actions instead of BUY actions.  In the ADD actions you'll use enter the original purchase dates in the "Date acquired" boxes.
    I have an Excel spreadsheet for these typical "boot" deals that's different from @q_lurker 's and oriented towards entries needed in an income tax return.  Using his numbers (changed one date to make a lot short term) I come to the same dollar answers:
    I also have a different sequence of Quicken entries that keys off the DERIVED BASIS number for IPHI.
    1. Do a REMOVE action for all shares of IPHI.
    2. Do an ADD action for 100 shares of IPHI at a total cost of $6,600.00 and a date that makes the lot short term.
    3. Do an ADD action for 200 shares of IPHI at a total cost of $3,328.25 and a date that makes the lot long term.
    4. Sell the IPHI shares for $19,800.00.
    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 three Add actions - two for the long term lots of 200 shares and one for the 100 share short term lot - 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.  (The "Basis in MRVL column above.)
    The enter a Sold action for the fractional share using the Cash in Lieu as the proceeds and recognizing the gain or loss.

  • Joseph
    Joseph Member ✭✭
    Thank you, these are both very helpful.
  • Tom Young
    Tom Young SuperUser ✭✭✭✭✭
    If you had several lots of IPHI and are having problems post the details of your lots - date/shares/cost - and either one of us can do the calculations for you.
  • Joseph
    Joseph Member ✭✭
    Thank you, that's a kind offer, I'm good with Quicken except in this type of transaction, I've never had one before. Frankly, I'm more concerned about the cash and share balances being correct (I'm more OCD about that than the gains being correct, because I tend to rely on my brokerage 1099 for my tax reporting). That said, I had 2 small lots of INPHI:
    2/11/2020 - 12 shares - $83.30
    3/4/2020 - 3 shares - $81.42
    5/15/2020 - 1 share - $104.60

    Thank you!
  • Tom Young
    Tom Young SuperUser ✭✭✭✭✭
    edited May 20
    Well, lets try this again with the correct number of shares.

    I used the 4/21 Hi/Low average of $46.37 as the "fair market value" of the stock received.  The Form 8937 might suggest a different value and your broker might even use yet another value.  There's no "cookbook" method of determining the stock's fair market value here.  If Form 8937 and/or your broker use a different value than the 4/21/21 Hi/Low average you can adjust your numbers, leave them "as is", or simply wait to make your entry until Form 8937 is published an/or your broker uses yet another number. 
    Do a REMOVE action for all shares of Inphi
    Do an ADD action for 15 shares of Inphi @ $0.00.  Use any date that makes the holding long term.
    Do an ADD action for 1 share of Inphi @ $0.00.  Might as well use the original 5/15/20 date.
    Now sell all Inphi shares for proceeds of $1,056.00

    At this point you have no Inphi shares, you have $1,056.00 of cash (excluding any CIL), and you've got a recognized gain of $1,056.00.

    Now do an ADD of 27.876 shares of Marvel @ $35.8588/sh with an acquired date of 2/11/20, an ADD of 6.969 shares of Marvel @ $35.0495/sh with an acquired date of 3/4/20, and an ADD of 2.323 shares of Marvel @ $45.02798 with an acquired date of 5/15/20.  Total Marvel shares should be 37.168 and basis at that point should be $1,348.46.

    Sell the fraction of a share (.168) of Marvel you should have received using the amount of the CIL as total proceeds, resulting in a gain or loss.  You can follow your broker here as to how the fraction of a share is selected.


  • Joseph
    Joseph Member ✭✭
    thank you for that. one correction though - i had 16 shares total (not 17 - you have 4 on 3/4 instead of 3). can you please repaste it with that correction? Obviously I know what the cash amount is in step one, but not the add shares steps.
  • Tom Young
    Tom Young SuperUser ✭✭✭✭✭
    My original post revised for correct number of shares on 3/4/2020.
  • q_lurker
    q_lurker SuperUser ✭✭✭✭✭
    My version of the calculations:


    The Quicken Transactions I would use (all transactions dated as of the merger date (4/20?)

    1)  Sell 16 shares of the IPHI company for $2404.46 total netting $1056 in capital gains.  Since three different sale prices, I would use three different transactions.  The ST sale of the 5/15/20 lot requires its own transaction to get the ST gain correct.  

    2a)  Buy 27.876 shares of the 'MRVL' company for $999.60.
    2b)  Buy 6.969 shares of the MRVL company for $244.26.
    2c)  Buy 2.323 shares of the MRVL company for $104.60.
    At this point you should have the $1,056 cash in the account equaling the $66 / share on 16 shares 
    3)  Remove Shares transaction - 37.168 shares of MRVL
    4a)  Add Shares transaction -- 27.876 shares MRVL basis 999.60, Acquired 2/11/20
    4b)  Add Shares transaction -- 6.969 shares MRVL basis 244.26, Acquired 3/4/20
    4c)  Add Shares transaction -- 2.323 shares MRVL basis 104.60, Acquired 5/15/20
    5)  Sell 0.168 shares of MRVL company for the amount of 'cash-in-lieu' received. 

    I see Tom has split the 0.168 shares among the three lots in proportion to the lot sizes.  I have never seen any guidance on that selection, and have typically chosen to mimic the broker's choice or to choose the fractional shares from the most expensive lot (lot 3 in your case) to minimize the gain.  In reality, the gain on such fractional shares is usually not significant.  Do what you think best. 

    All together for the three lots, this amounts to 11 transactions.  I have no criticism of Tom's method.  What I do and have outlined just makes sense in my linear brain.  

    Hope this helps.
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