MERGER: Kraft and Cadbury

Issue: How do I enter the Kraft acquisition of Cadbury?

Cause:

Kraft Foods acquired Cadbury for a combination of cash and Kraft shares. For tax purposes this merger is treated as a sale of Cadbury and then a buy of Kraft.

Information on this transaction can be found at this web site :
 http://phx.corporate-ir.net/phoenix.zhtml?c=129070&p=irol-sec&seccat01.15_rs=21&seccat01.15_rc=10

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 address above.

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

Because of the structure of this merger first enter a sale of Cadbury. The total sale proceeds will be the sum of all cash received from this merger + the value of Kraft shares received. Due to the prolonged tender offer period and multiple revisions of the offer individual shareholders may receive different amounts of cash per Cadbury share and different amounts of Kraft stock per Cadbury share. This may vary due to when the shareholder accepted the offer.
Estimates from the last offer revision are given below: The cash should be approximately $31.09 per Cadbury ADR share + any cash in-lieu of fractional shares. In addition approximately 0.76 shares of Kraft were received for each Cadbury ADR share. Fortunately, you need only the final total cash received and final number of Kraft shares received to complete this merger. This information should be available from your broker statement.

An example of the Cadbury sale is given below for 100 shares of Cadbury ADRs. We assume the value of Kraft on the transfer date is 28.43 per share.

Total sale price would be 3109.52 + 17.06 + 2160.68 = 5287.26 Merger Cash for Cadbury shares = (100 x 31.0952) = 3109.52 Cash in-lieu of Fractional shares = 17.06 Value of full Kraft shares = (76 x 28.43) = 2160.68 Date of transaction will vary depending on when the offer was accepted. Check your broker statement.

The Kraft buy transaction is a normal buy transaction. The purchase price will be exactly the same as the value received amount for Kraft shares used for determining the sales price of Cadbury ADR shares. In the example above, the total purchase price for Kraft shares would be 2160.68. The transaction date can vary. Check your broker statement. This transaction can be dated the same day as the Cadbury sale.

If you were charged a reorganization fee by your broker, subtract the fee from the calculated sale proceeds for the Cadbury sale. For example, you were charged a $30 reorganization fee. Subtract 30 from the total sale proceeds. In the example above, the total sale price would be reduced to 3079.52 instead of 3109.52.

While unlikely, it is possible some Cadbury shareholders received Great Britain Pounds instead of US dollars for the cash portion of their merger consideration. You will need to convert the pounds to dollars to figure the total sale proceeds for the Cadbury sale entry. In addition, you may need to calculate a gain or loss from the conversion of the pounds into dollars. If your broker statement does not list pounds received this section does not apply to you.