5/17/2021 cash/stock merger between FLIR and TDY?

jnjwallin

I'm trying to figure out how to post the cash/stock merger between FLIR & TDY. Somehow my cost basis in FLIR was reduced by what looks to be the market value of TDY at 5/31/21. I just don't know how to make that happen in Quicken. Any input?

Tom Young

Entering these sorts of stock plus cash transactions into Quicken can be tricky as there's no "wizard" to guide you through the needed entries.  The reason for this is because the income tax rules and regs require some very specific accounting for the transaction.  If you have multiple lots of stock in the acquired company, FLIR in this case, you're pretty much forced to do calculations outside of Quicken - a spreadsheet helps - and then make a series of specific entries into Quicken to get you the results you're looking for.
The tax rules dictate:
1.  You need to calculate your gain or loss on a lot-by-lot basis.
2.  Your true economic gains are calculated as: cash + FMV of stock received (as "proceeds") minus the basis of the stock tendered.
3.  You report the smaller of the calculated gain or the cash received as gain.
4.  If you calculate a loss based on the cash + FMV proceeds you can't use the loss.  For a loss lot you report a $0 gain/loss.
5.  For each lot your basis in the stock of the new company is: Basis in lot of old company tendered - cash received + gain recognized.
6.  The holding period of the each lot tendered of the old stock carries over to the new lot received of the new stock.  
Got all that?

You can see that a spreadsheet (if you have many lots) is almost a necessity.  When you do your calculations you use the correct exchange ratio - 0.0718 - which will almost certainly create fractional shares for each new lot.  That's the correct approach as the full amount of stock received for each lot - including fractions of a share - figure into that lot's "proceeds."
You should also see at this point that the "basis" you're going to for each gain/loss calculation of each lot tendered might be the basis of the lot tendered, (gain calculated on cash plus FMV of stock minus basis is less than cash received), or it might be the lot's entire basis (a "loss"), or some number in between.  That is you derive the basis depending on the amount of the reporable gain or loss.  (It's even more complicated than that for income tax reporting purposes as some brokers report only the cash as proceeds and some brokers report the sum of cash plus FMV of stock as proceeds.)

TDY published a Form 8937 that determined that the average of the high and low trading price of Teledyne Common Stock on the New York Stock Exchange on May 14, 2021, the Effective Date of the Mergers, was $420.49 but have taken no position on what dollar amount shareholders should use in their own calculations.  (There's no "cookbook" definition of fair market value in these cases so there can be different opinions.  You might call your broker and see what number they will be using on their Form 19099-B, if they use a "FMV" at all.)
Having gotten your ducks in a row my method for entering these transactions in Quicken is:
1. Make one entry to Remove all old shares of FLIR   
2. Make one entry to Add back all your old short term shares of FLIR using any date that makes the new "lot" short term and using a per share cost that comes to the derived basis determined above.
3. Make one entry to Add back all your old long term shares of FLIR using any date that makes the new "lot" long term and using a per share cost that comes to the derived basis determined above.
4. Sell your short term and long term holdings for the cash you received for each of these "lots".

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" TDY 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 several lots and are willing to share I have a spreadsheet that will calculate all this for you.  Information needed is Date, Number of shares, Per share cost for each lot.

jnjwallin

Thank you so much. I'll work on this tomorrow and hopefully it'll all make sense. Fortunately there are only two lots that I'm dealing with.

Tom Young

@jnjwallin

I overlooked the "Mac" aspect of your question so the step by step sequence I outlined works in the Windows version of Quicken but I'm not sure if it works in the Mac version of Quicken.  If the "actions" of Remove and Add are available in the Mac version and work like they do in the Windows version, I'd think you should be OK.  But be sure to make a backup of the file before trying it out.

Also, I noticed that Costbasis.com used the 5/13/21 close price of $409.41 as TDY's Fair Market Value.  Perhaps that's because they are taking the position that the deal was actually effective on 5/13/21 when the shareholder vote to merge was approved some time during the day. 

jasonb885

For those following along at home that are faced with a similar challenge for the MS purchase of EV, Morgan Stanley reports the following in their 8937 which echos what Tom said regarding fair market value:

"Form 8937, Part II, Box 16:
See response to Box 15, above. For purposes of calculating basis of Morgan Stanley common stock
received in the Mergers, the taxable gain (if any) recognized is determined by reference to the fair market value of Morgan Stanley common stock and the amount of cash received in the Mergers. Although U.S. federal income tax rules do not specify how to determine fair market value, one possible approach is to utilize the New York Stock Exchange market closing price on February 26, 2021 for Morgan Stanley common stock as an indication of the fair market value. Using this approach, the fair market value of each share of Morgan Stanley common stock received in the Mergers was $76.87. Other approaches to determine fair market value may also be possible and a U.S. holder of Eaton Vance common stock should consult its own tax advisor regarding the appropriate method for determining fair market value."

So anyone faced with this, searching the Internet for "Form 8937" and the acquiring company name might turn up useful information.

This is much more complicated than a simple stock swap, and I'll see if I can work out the math for this locally.

Thanks!