How to Handle a Merger


R

Ron Rosenfeld

M2003

Verizon buys MCI for cash + 0.5473 shares of Verizon for each share of MCI.

I use the Portfolio/Record a special activity/Record a merger.

I fill in the data shown but there seems to be one problem and one question.

1. There was a fractional share as a result of the calculation. I selected
the option to sell this fractional share, and filled in a price to be used.
However, this "sale" did not get recorded so the calculation left me with a
fractional share. Is this feature broke, or am I doing something wrong?

2. After doing it several ways, it seems the "best" way to account for the
cash received is to call it "Other Income" from Verizon. I suppose I could
call it a "Return of Capital", but then it does not show up on the investment
performance reports. Is this a valid method of handling the cash portion of
the transaction.

Thanks.


--ron
 
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C

Cal Learner-- MVP

M2003

Verizon buys MCI for cash + 0.5473 shares of Verizon for each share of MCI.

I use the Portfolio/Record a special activity/Record a merger.

I fill in the data shown but there seems to be one problem and one question.

1. There was a fractional share as a result of the calculation. I selected
the option to sell this fractional share, and filled in a price to be used.
However, this "sale" did not get recorded so the calculation left me with a
fractional share. Is this feature broke, or am I doing something wrong?
I suspect you missed the choice which asked if you were receiving
cash for the fractional share, and that Money would have generated
the Sell.
2. After doing it several ways, it seems the "best" way to account for the
cash received is to call it "Other Income" from Verizon. I suppose I could
call it a "Return of Capital", but then it does not show up on the investment
performance reports. Is this a valid method of handling the cash portion of
the transaction.
The proper way to get rid of your fractional share is to generate a
Sell transaction. Fill in the number of shares, and fill in the CIL
(cash in lieu) amount you received as the Total. However that risks
there possibly being a tiny fraction remaining due to rounding for
display.

There is a way to be sure: From the account register,
AccountSummary(left)->AccountUpdate(bottom). Change the
TotalQuantity of the stock to 0. SaveAndFinish.

Note that Money created a RemoveShares transaction. Change it to a
Sell, and set the Total to the right amount of money. Change the
date as appropriate too.
 
R

Ron Rosenfeld

I suspect you missed the choice which asked if you were receiving
cash for the fractional share, and that Money would have generated
the Sell.
I do not believe I missed that; and I repeated the data entry several times. I
recall checking that option where it suggested it if I held the certificates
myself. And it did subsequently get to the point where it asked me for the
price for Money to use in selling the fractional share and I filled in a price.

The proper way to get rid of your fractional share is to generate a
Sell transaction. Fill in the number of shares, and fill in the CIL
(cash in lieu) amount you received as the Total. However that risks
there possibly being a tiny fraction remaining due to rounding for
display.
I agree with the sale of the fractional share of Verizon being recorded as a
sell. And I guess I will do that when the sale settles at my broker.

However, you misunderstand, I think. I am not concerned about cash for the
fractional share remaining of Verizon. Rather I am concerned about the cash I
receive for the shares of MCI. For each share of MCI I receive a fractional
share of Verizon PLUS cash. (0.5473 shares of Verizon PLUS $2.39/share of MCI).

If I "sell" the shares in MCI (which is how the transaction downloaded
originally from Fidelity), then there are none left to merge with Verizon.

If I record a "return of capital" transaction for either, so as not to affect
the share balance, then the performance report omits that amount from the total
gain.

That's why I thought that this cash transaction should be recorded either as a
dividend or as other income.

Thank you for helping me think about this.

--ron
 
C

Cal Learner-- MVP

I do not believe I missed that; and I repeated the data entry several times. I
recall checking that option where it suggested it if I held the certificates
myself. And it did subsequently get to the point where it asked me for the
price for Money to use in selling the fractional share and I filled in a price.



I agree with the sale of the fractional share of Verizon being recorded as a
sell. And I guess I will do that when the sale settles at my broker.

However, you misunderstand, I think. I am not concerned about cash for the
fractional share remaining of Verizon. Rather I am concerned about the cash I
receive for the shares of MCI. For each share of MCI I receive a fractional
share of Verizon PLUS cash. (0.5473 shares of Verizon PLUS $2.39/share of MCI).

If I "sell" the shares in MCI (which is how the transaction downloaded
originally from Fidelity), then there are none left to merge with Verizon.
You will want to Void that Sell.

If I record a "return of capital" transaction for either, so as not to affect
the share balance, then the performance report omits that amount from the total
gain.

That's why I thought that this cash transaction should be recorded either as a
dividend or as other income.
I was thinking the Portfolio/Record a special activity/Record a
merger handles the cash. I appear to have been wrong about that.

Let's wait to see if that cash is treated as a dividend or as a sale
of shares. I have seen this kind of thing done both ways, with the
sale being more common.

If you don't hold VZ except as a result of this operation, I would
be inclined to split MCI appropriately, rename, and change the
symbol. I would enter a dividend or a sell of shares according to
how the tax treatment documents call for. That treatment would also
affect the split number that is appropriate. I looked at MCI and VZ
sites to see if such a document exists yet, but I did not see it.
 
R

Ron Rosenfeld

You will want to Void that Sell.



I was thinking the Portfolio/Record a special activity/Record a
merger handles the cash. I appear to have been wrong about that.

Let's wait to see if that cash is treated as a dividend or as a sale
of shares. I have seen this kind of thing done both ways, with the
sale being more common.

If you don't hold VZ except as a result of this operation, I would
be inclined to split MCI appropriately, rename, and change the
symbol. I would enter a dividend or a sell of shares according to
how the tax treatment documents call for. That treatment would also
affect the split number that is appropriate. I looked at MCI and VZ
sites to see if such a document exists yet, but I did not see it.
Yes, I already eliminated that sell -- instead of voiding, though, I just
deleted it. Because of the way FIDO does the downloading, I won't see it
again.

The cash received from the merger -- not the fractional share cash but the cash
per share -- was treated as a sale of MCI shares by FIDO.

But, the tax treatment is irrelevant, since the position is held within a Roth
IRA.

It sure would be nice if MS could make handling this sort of transaction a bit
more intuitive. I, too, would have thought that that wizard should be able to
handle a buyout which involved stock + cash; but if so, I can't see that in
M2003.

Best,

--ron
 
C

Cal Learner-- MVP

Yes, I already eliminated that sell -- instead of voiding, though, I just
deleted it. Because of the way FIDO does the downloading, I won't see it
again.

The cash received from the merger -- not the fractional share cash but the cash
per share -- was treated as a sale of MCI shares by FIDO.

But, the tax treatment is irrelevant, since the position is held within a Roth
IRA.
Easiest would be to enter the cash as a Dividend. Then Split the
shares 5473 shares for every 10000 shares. Change the name to
Verizon, and the symbol to VZ.



The other way, if it was considered to be a sell, would be to decide
how much basis stays with the VZ, and how much for the Sell
generating the cash. Then a little algebra determines how to split,
and then how many of those shares to Sell in return for the cash.
 
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R

Ron Rosenfeld

Easiest would be to enter the cash as a Dividend. Then Split the
shares 5473 shares for every 10000 shares. Change the name to
Verizon, and the symbol to VZ.



The other way, if it was considered to be a sell, would be to decide
how much basis stays with the VZ, and how much for the Sell
generating the cash. Then a little algebra determines how to split,
and then how many of those shares to Sell in return for the cash.
Thanks for your thoughts. I believe I will leave the cash as a dividend paid
by VZ.

I can't do the split/rename maneuver as I already have VZ.

When I went through the merger wizard, it allowed entry of the .5479 share
exchange; computed the proper number of shares; and transferred the original
basis that was present in MCI to VZ.

Unlike the Split wizard, I *was* able to enter the fractional share exchange
and have it work.

So I think I should be OK so far as having the reports show the correct amount
of profit; and I'll see how much cash I receive for the CIL of the fractional
share. And treat that as a sale of VZ.

What a PITA. Hopefully, the next time this comes up, I'll remember what to do
:-((

Best,


--ron
 

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