MERGER: Transocean Inc. [RIG] reclassification and merger with GlobalSantaFe Corporation [GSF].

Issue:

On 11/27/07, Transocean Inc. [RIG] completed the reclassification of its stock and the merger transaction with GlobalSantaFe Corporation [GSF].

Cause:

In accordance with the terms of the merger agreement, each outstanding ordinary share of Transocean immediately prior to the effective time of the merger was reclassified into (1) 0.6996 Transocean ordinary shares and (2) $33.03 in cash. At the effective time of the merger, each outstanding ordinary share of GlobalSantaFe was exchanged for (1) 0.4757 Transocean ordinary shares (after giving effect to the reclassification) and (2) $22.46 in cash. The shares of Transocean will continue to be listed on the New York Stock Exchange under the trading symbol "RIG" and the ordinary shares of GlobalSantaFe will no longer be listed.

Information on these transactions can be found from the SEC filings at http://www.deepwater.com/fw/main/SEC_Filings-57.html. Select the filing as of 10/3/07, entitled DEFM14A.

Resolution:

Editor's note: Please be aware that this combination of transactions is unique in our experience. Take a deep breath, read over the whole note first, sit down in front of the computer with your broker statement in hand, then enter the transactions.

There are three possible scenarios for this transaction:

To record the receipt of $33.03 per RIG share and the issuance of 0.6996 RIG new shares, Transocean shareholders must sell 30.04% of their existing shares. This sale must be done on a prorata basis for each block of RIG shares owned.

Step 1) Determine the number of RIG shares sold. Shares of RIG priot to the merger ________ * .3004 = ________.

Step 2) Enter in a SELL TRANSACTION for the number of shares calculated in step 1. For instance, if you own 25 shares, you would enter a sale for 7.51 shares for your cash received of $825.75 [25 x $33.03]. It is important to include the fractional portion of these shares, even though your broker may be reporting that you have only whole shares of RIG.

By default when you enter a sale in the software, your oldest blocks are selected first. If you have purchased Transocean multiple times, or reinvest your RIG dividends you will have multiple blocks, which will each need to be calculated separately.
After clicking OK on the the initial ENTER NEW TRANSACTION window, another window (titled Stock Withdrawal) comes up showing your blocks, with the number of shares in each block. You will need to calculate the same 30.04% as you did earlier but for each block.

You have 200 shares of RIG and enter your sale for 60.08 shares on the initial ENTER NEW TRANSACTION window. On the Stock Withdrawal window, the program shows you have 4 blocks. Block 1 shows 100 shares. Block 2 shows 50 shares, and blocks 3 and 4 show 25 shares. By default, Club Accounting has selected 60.08 shares to be sold from the oldest block. (Block 1) We zero out block 1, then calculate and modify accordingly.

When you are through, the number of your RIG shares should be 69.96% of your original shares. You probably will be showing fractional shares, even though your broker is showing only whole shares. Wait until the broker reports cash payments in lieu of fractional shares, and then enter these payments, Dated One Day Latter, as SELL TRANSACTIONS for the fractional shares involved. At that point, the number of your RIG shares should agree with the broker statement.

Clubs owning both RIG and GSF shares prior to the merger should complete the steps in the aforementioned section before making the entries described below. For GSF shareholders, this is a stock plus cash merger, a reorganization which has become increasingly common in recent years.

For each share of GSF, you received 0.4757 shares of RIG common stock plus $22.46 in cash.

The instructions below work if you have purchased GSF in one block and have not had any reinvested dividends or additional purchases of the stock. If you have reinvested dividends or purchased additional blocks of stock, you'll need to calculate this for each and every block. To make this easier, please refer to Jim Thomas' excellent spreadsheet at:
http://home.comcast.net/~jimt075/BI/StockCashMerger.xls

First, if you have made any entries for this transaction in the Club Accounting software, you should delete them.

The total merger consideration is $87.036275 per GSF share. Subtract your GSF basis from that total consideration to calculate your gain. That is your total gain on the transaction, not your reportable gain. The reportable gain is the lesser of the cash received or the total gain. The type of gain is based on how long you held it - over one year is Long-Term, one year or less is Short-Term. You report it by going to Transactions, Dividend or Distribution, and then selecting either long term or short term capital gain as the type. Date that transaction 11/27/2007.

If your total gain is more than the cash received, you should skip the rest of this paragraph.
Now, we must account for the balance of cash received in excess of that reportable gain. You will enter that excess as a return of capital against the GSF stock. Enter it by going to Transactions, Dividend or Distribution: type = Return of Capital. Date that transaction 11/27/2007 also.

Now, we are ready to record the merger. Date this transaction one day later than the previous two, or 11/28/2007. Go to Transactions, Merger. The total number of RIG shares received will be 0.4757 times the number of GSF shares held. Show that you are receiving the full number of shares of RIG, including the fractional portion.Enter the Cash In Lieu received in the Cash Received section.

Finally, if the broker charged a reorganization fee, enter that on 11/29/2007 as a negative return of capital against RIG for the reorganization fee. Goto Transactions,Dividend or Distribution: Type Return of Capital. Be sure to enter it as a negative figure - that is with a minus sign.

For a step-by-step of this procedure, I recommend printing out this sheet and filling out the blanks.

Step 1) If you entered any part of this merger transaction, delete those transactions from the software.

Step 2) Determine your total merger consideration.

The total merger consideration is $87.036275 per GSF share.
Your total consideration is: your shares in GSF ________ * $87.036275 = ________________________

Step 3) Determine your gain.
Your total consideration (above) MINUS your GSF basis $________________ =
The total gain (not the reportable gain) _____________________

Step 4) Determine your reportable gain. Do not include cash in lieu of fractional shares in the CASH RECEIVED blank below.
Your reportable gain is either the cash received $_____________, or the total gain $______________, whichever is less.
Your reportable gain is $________________

Step 5) Determine the type of gain.
* If the stock has been held over 1 year, it is a Long-Term Capital Gain (LTCG)
* If the stock has been held one year or less, it is a Short-Term Capital Gain (STCG)

Step 6) In the software, enter the Reportable Gain
a) Go to TRANSACTIONS > DIVIDEND OR DISTRIBUTION
b) Set Transaction Date to 11/27/2007
c) Set Transaction Type to Dividend or Distribution
d) Select your Cash Account.
e) In the Amount field, enter the Reportable Gain (Step 4, above)
f) Set the Type to Short-Term or Long-Term Capital Gain.
g) Set the Security to GSF
h) Click OK

Step 7) If the reportable gain is more than or equal to the cash received, skip this step and step 8.
Determine the amount of cash received in excess of the reportable gain.
Your cash received $__________________ MINUS your reportable gain (from Step 4) $________________________ = $_______________________________. This amount will be entered as a Return of Capital in Step 8, below.

Step 8) Enter the cash received in excess of the reportable gain as a Return of Capital.
a) Go to TRANSACTIONS > DIVIDEND OR DISTRIBUTION
b) Set Transaction Date to 11/27/2007
c) Set Transaction Type to Dividend or Distribution
d) Select your Cash Account.
e) In the Amount field, enter the balance of cash received in excess of the reportable gain (Step 7, above)
f) Set the Type to Return of Capital
g) Set the Security to GSF
h) Click OK

Step 9) Record the Merger

a) Compute the number of RIG shares received.
The number of GSF shares ____________ times 0.4757 = ____________, total number of RIG shares received, including fractional shares.
b) At the top of the page, select TRANSACTIONS > MERGER
c) Set Transaction Date to 11/28/2007.
d) Transaction Type will already be set as MERGER.
e) Select the appropriate Cash Account - ie Broker, checking, etc.
f) Select GlobalSantaFe Corporation under Select Old Security.
g) Set Old Security Price per share to zero (0).
h) Under CASH RECEIVED, enter the cash received IN LIEU OF FRACTIONAL SHARES, if any. Do not enter the ENTIRE amount of cash received.

Note: The cash received from the sale of a fractional share should be separate on your broker statement from the cash received. This "cash in lieu" comes from the fact that no fractional shares were issued in this transaction, and, thus, cash was paid instead. The program will sell the fractional portion of the total RIG shares for this amount.

i) Enter Transocean, Inc. for New Security. [If Transocean, Inc. is not available select NEW SECURITY and enter the data.]
j) In SHARES RECEIVED, enter ____________ from step 9a, in the line with RIG.
k) Enter $135.75 for the price per share.
l) Click OK to complete the merger transaction.

Step 10 - Optional) If there is a reorganization fee, that gets entered as a negative Return of Capital against Transocean, Inc.

a) Go to TRANSACTIONS > DIVIDEND OR DISTRIBUTION
b) Set Transaction Date to 11/29/2007
c) Set Transaction Type to Dividend or Distribution
d) Select your Cash Account.
e) In the Amount field, enter the Reorganization Fee as a negative number, using the minus sign.
f) Set the Type to Return of Capital
g) Set the Security to Transocean, Inc.
h) Click OK

Your transaction is complete!