Merger of Petrobras Energia and Petrobras Energia Participaciones
Background:
Petrobras Energia Participaciones (PEP) was a holding company headquartered in Argentina. ADRs of this company traded on the NYSE under the ticker symbol “PZE”. The largest asset of PEP was the energy company Petrobras Energia (PE) also headquartered in Argentina. PEP held an equity stake of approximately 76% of PE. Because PEP held shares of PE as its major asset, an investment in PEP was essentially an investment in PE. ADRs of the merged company (PE) will trade on the NYSE under the old symbol for PEP, “PZE”. The last day of trading for ADRs of PEP on the NYSE was September 29, 2009. On September 30, ADRs of PE began trading on the NYSE under the ticker symbol “PZE”. The merger was a tax free exchange according to company information.
Because of the relationship of PEP and PE before the merger, this merger can be reasonably entered in two ways in Club Accounting software. Both ways will be discussed below.
Option 1 - Enter this transaction as a merger.
Enter this transaction as a merger with PE as the surviving company. The exchange ratio was 0.359015136 shares of PE for each share of PEP. This ratio also applied to the ADRs. Be sure to enter the total number of shares to which you are entitled, including any fractional shares. (You might want to round down the exchange ratio to 0.3590 to 1.) Enter the cash-in-lieu received for fractional shares in the merger entry screen. The program will sell the fractional shares for the cash-in-lieu entered.
The holding period for the new company will begin on the day(s) of the original PEP purchases. However, return calculations will change and will begin on the merger date for the merged company.
Option 2 - Enter this transaction as a reverse split.
Because an investment in PEP was essentially an investment in PE makes this option reasonable when it would not apply to nearly all mergers.
Enter the ratio of 0.359015136 for 1 on the stock split entry screen. (You might want to round down the exchange ratio to 0.3590 to 1.) Enter the cash-in-lieu payment received for fractional shares. The program will sell the fractional shares for the cash received. Make sure you have fewer shares of PZE after the transaction than you had before the transaction was entered.
Entering this transaction as a reverse split will keep the holding period start date as the original PEP purchase(s). However, the return calculations for the merged company will use the original PEP purchase dates in the calculation. This differs from Option 1 above which uses the merger date.
The decision between the entry options is a decision on how you want the returns calculated for the merged company. Use option 1 if you want returns calculated from the merger date. Use option 2 if you want returns calculated from the original PEP purchases. Again, this is an unusual situation where the non-surviving company was a conduit to invest in the surviving company before the merger.
The PE press release on the merger can be accessed via the URL below:
http://tinyurl.com/PEPandPE .
