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MERGER: Disney Corp. and Marvel Entertainment



Issue: How do I enter the Marvel and Disney merger?

Cause
: Disney acquired Marvel for a cash consideration plus stock in Disney.

Refer to the Marvel web site: http://marvel.com/company/index.htm?sub=viewstory_current.php&id=1343

Or the Disney web site: http://corporate.disney.go.com/news/corporate/2009/2009_1231_marvel_close.html

Resolution
: This merger is a cash plus stock reorganization, which are becoming more and more frequent in recent years. All the information below is from the information available at the web sites of Marvel and Disney. Links are provided above.

The instructions below work best if you have purchased Marvel in one block and have not had any reinvested dividends or additional purchases of the stock. In the past, if you have reinvested dividends or purchased additional blocks of stock, you would need to calculate possible gain for each and every block. To do this manually, please refer to Jim Thomas' excellent spreadsheet at http://home.comcast.net/~jimt075/BI/StockCashMerger.xls

*Club Accounting is now capable of identifying blocks of stock where the cash received would result in a capital gain rather than only a return-of-capital. Because of this, you can enter the entire $30 per share received as a return-of-capital transaction without manually calculating how much of the cash payment is capital gain. For those blocks where a portion of the payment is capital gain, the program will record part of the payment as the appropriate capital gain.*

Because you are receiving cash, your cost basis in all or some of your Marvel shares may be reduced to zero. This cost basis will be transferred to the Disney stock you receive for those Marvel shares. This is not a mistake. It a consequence of the cash received in this merger.

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

The total merger cash consideration is $30 per Marvel share. Multiply your total number of Marvel shares by $30. This will be entered as a return-of-capital distribution. Go to Transaction > Dividend of Distribution. In the transaction window, use 12/29/2009 as the transaction date. Keep Dividend or Distribution as the Transaction type. (Change to Dividend or Distribution if this does not appear in the field Select Transaction type.) In the field Select Account chose the account where the cash was deposited. This will be the broker account for most clubs. In the field Amount, enter the total cash received for the merger. This should be 30 x (# of Marvel shares owned). Leave the field Ex-Dividend Date blank. In the field Type choose Return of Capital from the drop down menu. Enter MVL in the field Select Security. In the Remarks field you may want to make a note that this is extra cash from the Disney merger. Save the transaction

Now, we are ready to record the merger. Date this transaction one day later than the previous one, or 12/30/2009. Go to Transactions >Merger. Enter MVL in the field Old Security. In the field Cash Rec’d enter the cash-in-lieu from your broker statement. Use the list under Select New Security to choose DIS. If you did not add DIS already, click the New Security button to add DIS to the list. Show that you are receiving the full number of shares of Disney, including the fractional portion. This should be (# of Marvel shares x 0.7452). In the Price per Share of the new security enter 32.25. This is the closing price on the merger completion date.

Finally, if your broker charged a reorganization fee, enter a negative return of capital against Disney for the reorganization fee. Go to Transactions >Dividend or Distribution . In the field Type, choose Return of Capital. Be sure to enter it as a negative figure - that is with a minus sign. This can be dated 12/30/2009 but enter it after the merger.

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 ($30) per Marvel) share.
Your total consideration is: your shares in Marvel ________ * ($30) = ________________________

*** The program now allows you to skip Steps 3 through 7. You can enter the total from Step 2 as Return of Capital in Step 8. The program will calculate the gain, if any, block by block. ***

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

Step 4) Determine your reportable gain.
Your reportable gain is either the cash received $_____________, or the total gain $______________, whichever is less.
Your reportable gain is $________________

Step 5) Determine the balance of cash received in excess of the reportable gain.
Your cash received $__________________ - your reportable gain (from Step 4) $________________________ = $_______________________________

Step 6) 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 7) In the software, enter the Total Gain
a) Go to TRANSACTIONS > DIVIDEND OR DISTRIBUTION
b) Set Transaction Date to [date1]
c) Set Transaction Type to Dividend or Distribution
d) Select your Cash Account.
e) In the Amount field, enter the Total Gain (Step 3, above)
f) Set the Type to Short-Term or Long-Term Capital Gain.
g) Set the Security to Marvel
h) Click OK

Step 8) In the software, accounting for the balance of cash received in excess of the reportable gain. (The software now allows you to enter the total from Step 2 as Return of Capital. The gain will be calculated by the program.)
a) Go to TRANSACTIONS > DIVIDEND OR DISTRIBUTION
b) Set Transaction Date to 12/28/2009
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 5, above)
f) Set the Type to Return of Capital
g) Set the Security to Marvel
h) Click OK

Step 9) Record the Merger.
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 you owned 11 shares and they gave you 5 for a 2:1 transaction, leaving .5 unaccounted for. Rather than give you .5 shares, the broker sold them for the price of the stock that day. "Cash in lieu" is the result of that sale.
a) Go to TRANSACTIONS > MERGER.
b) Set the Transaction Date to 12/30/2009
c) Select the Account to receive the cash from the sale of any fractional shares
d) Enter the old security price per share (price)
e) Enter the cash received (the fractional share)
f) Enter the number of shares received INCLUDING the fractional share. (whole shares + fractional share)
g) Click OK

Step 10 - Optional) If there is a reorganization fee, that gets entered as a negative Return of Capital against Disney.
a) Go to TRANSACTIONS > DIVIDEND OR DISTRIBUTION
b) Set Transaction Date to [date3]
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 Disney
h) Click OK 01/14/2010



 
  
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