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MERGER: CF Industries and Terra Industries

Issue: How do I enter the CF Industries merger with Terra Industries?

Cause: CF Industries completed its merger with Terra Industries on 2/5/2010 for cash and CF Industries stock.
The SEC filing for this merger can be found at through the CF Industries web site at:
http://phx.corporate-ir.net/phoenix.zhtml?c=190537&p=irol-sec&control_symbol
Choose the S-4A  filing of 3/19/2010.

Resolution: This merger is an acquisition and is a fully taxable event. The holding period for CF Industries will begin the day after the merger. Gain or loss will be determined by the fair market value of cash plus CF shares and the cost basis in Terra Industries. All the information below is from the information available from the S-4 filed with the SEC.

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

To record this merger will require 3 entries in the accounting software; a sale of Terra Industries, a cash transfer and finally a buy transaction of CF Industries. While we use the first three days of April in the examples below, your broker statement may use different dates; if so, by all means, use the dates from the broker statement.


1. The Sale of Terra.

  • First, you'll need to calculate the total Proceeds to enter for the sale. Total Proceeds = [46.29 x (# of Terra Industries shares owned)]*
  • Enter a sale of all your shares of Terra on 04/01/10, for the Total Proceeds.
  • If you were charged a commission or re-organization fee, make sure to enter it as part of this sale transaction.
  • Make absolutely sure to choose the Suspense account for this transaction. 

* The total merger consideration is $46.29 per Terra Industries share. This is $37.50 in cash and 8.79 in CF Industries shares. The total proceeds are calculated by multiplying 46.29 by the total shares of Terra Industries owned.


2. The Transfer transaction.

  • Look at your broker statement to find the total cash received. This should be [37.50 x (# of Terra shares owned)] + cash-in-lieu.
  • Make sure to check through the statement, as the two amounts may be listed on separate lines.
  • Enter a transfer on 04/02/2010
  • Make the transfer from the Suspense account to the Bank or Broker account that received the money.
  • The amount will be the total cash received, as calculated above.


3. The Buy transaction.

  • Look at your broker statement for the number of WHOLE shares of CF received.
  • Enter a buy transaction for on 04/03/2010 for the number of WHOLE shares of CF received.
  • The amount of the transaction will be whatever is left in the suspense account.
  • Make SURE to use the Suspense when entering this transaction.


You can check the shares you should receive by multiplying your # of Terra shares by .0953 and taking the whole number part of the result. For example, for 100 shares of Terra Industries you would enter .0953 x 100 = 9.53. Reduce this to the whole number 9. Be sure to check this with your broker statement.



 
  
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