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How do I record a corporate merger that results in a new combined company

LordKen2024

Recently, Smurfit Kappa and WestRock completed a merger, the result of which is now Smurfit WestRock. At the end of trading on Friday (the day the merger closed), the two combining companies' stocks were delisted from their respective exchanges, and on Monday, a new stock for the combined company was listed on both the NYSE and the London Exchange.

On Monday (the opening date of the new company), my shares of the previous company were exchanged one-for-one with shares of the new company (with additional cash per share for my investment). Obviously cash in lieu of fractionals was awarded (so I need to account for that transaction as well).

So my question is, what is the best way to record this type of transaction? To me, it does appear to make sense to record it as an acquisition, as I'm getting a share of the newly combined company for each share of the old company, but cash is also involved, and I'm not sure whether that is simply recorded separately, or if there is some option to account for a stock and cash transaction.

Thanks in advance for any guidance that can be provided.

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NotACPA

Since it was 1-for-1, I assume that there were no fractional shares involved and that the cash rec'd was a dividend of some sort. If I'm wrong, where did the fraction come from? Did you hold a fraction of the predecessor?

I'd be inclined to simply rename the previously held company (adjusting the symbol, if needed) and record a dividend, or a sale of any fraction rec'd.

You could also record a Reminder transaction in the account with the date of the name change if you'd like.

q_lurker

So it appear you held Westrock and you are receiving 1 share of Smurfit Westrock (SW) and $5 cash for each share of Westrock you held. This is generally known as a cash-to-boot merger and can be challenging to process. The $5 / share you get may be fully taxable as cap gains, partially taxable, or not taxable, depending on the total value you receive (SW share + $5) and your basis in the Westrock shares.

I'll try to take a deeper look in the coming days, but you should also be on the lookout for a Form 8937 to be published by SW (possibly in weeks rather than days).

Posting this in Quicken is typically a Sell of your Westrock and a Buy or Add shares of SW - and maybe some other stuff.

WSC

Hey,

If I sell, do I use the cash from the sale to buy Smurfit? And how do I account for the cash @ $5/share? And I have fractional shares and it looks like have now have fractional shares of Smurfit. Or do I just remove the WestRock shares and add the Smurfit? This is a merger but I don't see a Quicken transaction for that….

Thanks.

WSC

NotACPA

@wsc, to find out exactly how to handle that $5/sh, you'll probably need to either wait for the 8937 OR see if the company has already posted it on their website.

Since we don't know what that cash represents, we really can't answer your question. Could be a DIV, could be something else.

q_lurker

If I sell, do I use the cash from the sale to buy Smurfit?

Fundamentally, yes. You sell for a specific value + cash received and buy all applicable shares for that specific value, leaving the cash received ($5/share) in the account as cash. Then you sell any fractional shares for the cash in lieu amount received. The 'trick' is to sell for the for the right amount.

And how do I account for the cash @ $5/share?

It is part of the sale proceeds.

And I have fractional shares and it looks like have now have fractional shares of Smurfit.

That would be unusual, but not impossible. You may see them sold for a cash-in-lieu amount is a few days.

Or do I just remove the WestRock shares and add the Smurfit?

You could do that as a temporary step. I suggest not rushing into this. Be sure you have your data lined up first. Or you can do it as a final step, depends on how accurate you want your data in Quicken to represent the real world data.

This is a merger but I don't see a Quicken transaction for that….

This is a complicated enough investment transaction that is relatively infrequent. Thus no canned approach within Quicken. I'll still try to get a deeper look soon (not for a few days though). If you choose, you can take a look at the data costbasis.com produces for this deal. Also as noted there, this should be handled on a lot-by-lot basis. Lots bought at different times might get treated differently in determining applicable capital gains income. Again, may not a simple process within Quicken - depending on your needs and wants.

WSC

Thanks for all the help. PLease let me know what you think when more info comes out.

Appreciatively,

WSC

Any more info here on how to do this?

q_lurker

According to the costbasis.com presentation for this merger, it is a fully taxable transaction. I cannot independently corroborate that position, but I consider that a reliable reference.

https://www.costbasistools.com/cashtoboot/boot.php

As a fully taxable transaction, you would sell your Westrock shares and buy Smurfit Westrock shares. I would be looking at the basis of the new Smurfit Westrock shares reported by your broker (presumably about $46/share). I would then sell the Westrock holding for that amount + $5 per share. The Buy would be for the basis amount leaving you with the $5/share cash in your account. You would have capital gains due based on the sale proceeds and your Westrock basis.

WSC

Thanks so much!