how to enter a stock & cash merger where you receive both cash and stock for the entire shares?

questionsforever · February 28

There is a merger MTTR-CSGP where it is worth $5.0 per share and you got $2.75 in cash and $2.75 in CSGP shares at a ratio of 0.3552. But I don't understand how to enter this. In theory you got 2.75 on the total shares you owned (say 1000 shares) and you also converted the full 1000 shares into csgp shares at a ratio of 0.3552 csgp shares for 1 mttr share. But this is not a dividend either. Should I do a 'fake' transaction to split the 1000 shares in half and record 500 shares sold at $2.75 and then 500 shares converted at (double) the actual ratio of 0.03552 (so 0.7104) of the remaining 500 shares as a stock for stock corporate action transaction in quicken?

so step 1. sell 500 shares of mttr for $5.50, step 2. convert 500 shares of mttr to csgp at a 0.7104 ratio? This doesn't seem very satisfying since the actual transaction is receive 2.75$ for 1000 shares of mttr (or $2750) and receive 35 shares of CSGP (and .52 fractional shares sold)?

q_lurker · February 28

I am not finding sufficient details about this merger to be specific. The following comments are offered with respect to most "cash-to-boot" mergers.

"Cash-to-boot" mergers are deals where the shareholders of the acquired company receive shares of the acquiring company and cash (to boot as an additional consideration). Commonly in those deals, it is necessary to compare the total value received (cash + stock) and the cash received (not including stock) against the shareholder's basis acquired company on a lot-by-lot evaluation. That process yields a result that all, some, or none of the cash received is to be considered current capital gains. From that point with respect to Quicken, my suggestion is typically to sell the shares of the acquired company for a 'correct' price, then buy the shares of the acquiring company leaving the right amount of cash in the account. I then remove the bought shares and add them back in to correct the acquisition date for those shares.

If you (or I) can find the right prospectus info that presents the tax consequences for the MTTR shareholder, I might be able to elucidate more clearly. Also, CSGP should be publishing an IRS Form 8937 about this deal in the coming days or weeks that should (hopefully) clarify many details.

questionsforever · February 28

maybe we can revisit when we get that form. My curiosity is if the cash portion is an income distribution or a capital gain and if the cost basis of the received CSGP shares is based on the cost basis after removing the cash portion paid.

E.g. if your cost basis of mttr is say $4.44/share. Would you calculate a capital gain on the cash portion of $5.5-$4.44 or $1.06/share?

and then the cost basis of csgp becomes $4.44 x number of shares - (2.75 x number of shares paid in cash) / 28.153 (0.03552 exchange ratio)

q_lurker · February 28

Below is my generic breakdown of the three cases that can flow from a cash-to-boot merger. Ignore the values shown which are for a different specific case. The generalization as to whether your basis in the acquired company are expensive, cheap, or in-between is what applies.

Tom Young · February 28

I've looked up the "Tax Consequences if the Mergers Qualify for the Intended Tax Treatment" in the S-4 and the deal apparently qualifies as a “reorganization” within the meaning of Section 368(a) of the Code", which requires the tax treatment follows the more typical cash plus boot as outlined by @q_lurker above.

My general step by step write up is as follows:

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 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. However, for tax purposes you report any gains as 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 of shares tendered 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 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 use for each tendered lot’s gain/loss calculation might be: 1) the actual basis of the lot tendered, (gain calculated on cash plus FMV of stock minus basis is less than cash received), or 2) it might be the lot's entire basis (a "loss"), or 3) some number in between. That is you derive the basis depending on the amount of the reportable gain or loss.

When Form 8937 is issued you’ll know the company’s recommended “fair market value” to use in your 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 the stock.

2. Make one entry to Add back all your old short term shares in the acquired company, 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 the acquired company, 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 company 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 and whatever FMV you want to use.

questionsforever · February 28

i want to use the quicken stock for stock exchange transaction type for the stock portion. How can I use that plus any additional transaction for the cash portion?

q_lurker · February 28

What is your real objective?

Do you want a real representation of what the current holding have become with their proper tax basis and what the taxable income consequences of this deal are for you?
Or perhaps you only care that you have the right number of CSGP shares and cash?
Are you interested in how well your original investment has done after it has transitioned to the new security?
Or something else?

The approaches @Tom Young and I have offered are geared toward that first objective. You may have different needs.

Also note that Tom has identified what the merger documents said about US tax consequences. Your Canadian consequences could be different and checking with your brokerage and tax advisors is likely warranted. Neither of us are in a position to offer tax advice.

questionsforever · March 1

What I'm interested in is the flow through cost basis of the csgp shares when adjusting for the cash received. Say you paid 15k for mttr shares and you get 7.5k back in cash , well I guess then I'm interested that the remaining 7.5k is now attributed to the cost basis of the csgp shares received. My confusion with quicken is that I want to use the stock for stock transaction type BUT then the cash received has to be entered as either an income type (cap gains?) or a return of capital or something else. I guess you could do a stock for stock transaction which removes and adds lots and then manually delete the Remove transaction and add a sale transaction which would capture a capital gains for the cash portion.

Tom Young · March 1

Since your basis almost certainly won't be $15K minus $7.5K, why bother using the stock for stock action at all? That action is appropriate for that particular situation, and it retains lot-level information, correctly, but there's no way to tinker with the resulting information, using cash, that would come to the correct answers (correct for this particular situation) as to gain or lot-level basis.

If it's simply "I had stock with a basis of $15K and now I have a different stock with a basis of $7.5k" just "sell" the old stock for the cash and buy one lot of the new stock with that cash.

q_lurker · March 2

I've done more digging.

You only get 0.03552 shares of CSGP per share of MTTR that you held. If you had 1000 shares of MTTR, you would now have 35.52 shares of CSGP. With the price of the CSGP shares in the $75 range, that is consistent with the idea that you are getting $2.75 worth of CSGP stock in addition to the $2.75 cash. That decimal error on the share ratio seems to be rampant in the financial news reports on this deal closing.
From the SEC S-4 form filed for this deal, the 0.03552 ratio was the most shares of CSGP you might get and is based on a CSGP price of $77.42/share. If the share price was higher, you would get fewer shares (a lower ratio would have applied). Because the CSGP price closed at $75.63/share on and traded below the $77.42 rate, you actually got slightly less than the $5.50 that was set as the target. You got more like $5.42 (2.75 cash + 2.67 CSGP value).

Now neither of those two points are critical, but they do speak to the importance of understanding the details.

So to reiterate the point Tom and I keep trying to make, I generated data for this merger using some possible but hypothetical purchases of MTTR shares. The data is shown below:

To begin, I've chosen to rate the fair market value of the CSGP shares at $75.27/share as received on 2/28/25. That is the average of the high and low trading values on that date. That choice then becomes a value of $2.674 for the 0.03552 shares of CSGP received (per MTTR share) in this deal. That choice is not mandated. You can choose something different. You broker can choose differently. A choice of $77.42 will lead to the $2.75 value for the 0.03552 shares of CSGP.

From there, note that for Lot 3, the basis of that lot of MTTR shares transfers in whole to the comparable lot of CSGP shares. The $2.75/share cash received for those shares is wholly Capital Gains. All because those shares were bought cheaply, less than the $2.674 value of the CSGP shares received.

Conversely, for the pricey Lot 1, all of the $2.75 cash received is effectively a return of capital, not gains, not taxable, and reduces the basis of the comparable CSGP lot from $710 to $435. All because those shares were bought for more than the $5.424/share value (or $5.50 or whatever other number you get to based on a determined FMV of the CSGP shares as the deal closed).

Any shares bought in-between those two price points (Lot 2) get some of the $2.75 cash as capital gains and some as basis adjustment.

Either Tom's method or mine will lead to this breakdown after the merger in Quicken:

You seem to be hell-bent on using Quicken's Corporate Acquisition wizard for this process. What I see 'could' be done is:

Enter a RtrnCap transaction. For my example the value would be the $418.64 value. But it will not allocate to each lot correctly.
Enter CGLong and CGShort capital gain distribution transactions. For my example, it would be the $406.36 value. Cap Gain distributions are not identical to LT and ST capital gains, but they are certainly very similar.
Do the Corporate Acquisition at the 0.03552 share ratio and using the closing value of CSGP on 2/28/25 ($76.25) as the price per share.
Edit each of the generated Add Shares transactions to correct the 'Total Cost' field. For any multi-lot holding, that field will be wrong because the RtrnCap does not allocate the value to the lots in the manner required for this deal.

Bottom line becomes: You have to know and deal with the details to get the cost basis per lot properly flowing to the CSGP lots.

questionsforever · March 2

I bought the mttr shares at 4.45 per share. If I assume a flow through cost basis after deducting the cash received I get about a 47 per share cost basis for csgp. However to get this result I have to use the stock for stock transaction type which does produce the correct cost basis of 47 per share. However what to do with the 2.75 per share of mttr in cash received? If the flow through stock portion transaction is tax free because it's a roll over , then the other portion I assume is a capital gain. But is the entire amount a capital gain or only the difference between the cost of 4.45 and the 5.42 deal price? This to me is the only issue in terms of the boot ..from what I understand they might treat the entire cash as a gain but I'm not clear if this is necessarily true. Obviously a difference (5.42-4.45) as a gain is less than 2.75 x shares sold.

Tom Young · March 2

Using a made up number of 100 shares, your $4.45 per share cost of MTTR, your ratio of .3552 shares of CSGP per share of MTTR tendered, and a FMV of $75.27 (average of High/Low of CSGP on 2/28/25), my spreadsheet says you got $29.4859 per share in this transaction ($2.75 + (.3552 x $75.27) a nice economic profit of $2,503.59 . You would also end up with 35.52 shares of CSGP with a FMV of $2,673.59 and cash of $275.00 (100 x $2.75). Your tax reporting is different, of course.

At this point you have all the number you need to make entries that comport with the "real world" (tax, in this case) requirements in Quicken. If your situation is really that simple - one lot of shares - why bother with the contortions of using the stock for stock action and trying to adjust from there?

EDIT: (adjusted ratio from .3552 to .03552 per @q_lurker post below)

"Proceeds" per share: $5.4236
Economic profit on transaction: $97.36
FMV of 3.552 shares received: $267.36
Cash received: Unchanged

q_lurker · March 3

@Tom Young

Need to correct the share ratio down to 0.03552. His (and many others) original ratio was high by a factor of 10.

how to enter a stock & cash merger where you receive both cash and stock for the entire shares?

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