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MERGER: SandRidge and Arena Resources
This note is a template only, and never to be sent out to a customer as-is
Issue:
How do I enter the SandRidge and Arena Resources merger?
Cause:
SandRidge completed its merger with Arena Resources on
7/16/2010 for cash and SandRidge stock.
The SEC filing for this
merger can be found through the SandRidge web site at:
http://investors.sandridgeenergy.com/phoenix.zhtml?c=196066&p=irol-sec&seccat01.2_rs=41&seccat01.2_rc=10
Choose the S-4 filing
of 4/16/2010. The amended terms are in form 424B3 dated 6/14/2010
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 from the S-4 and related forms 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 multiple entries in the accounting software. The basic
outline of these entries is given below:
Enter a large
Return of capital transaction to have the program calculate the
capital gain reportable for this merger.
Write down
the capital gains, both long-term (LTCG) and short-term (STCG).
Delete the large
Return of capital entry.
Enter capital gain
distributions for the LTCG and STCG.
Enter a smaller
Return of capital for the remainder of the cash received.
Enter the actual
merger transaction
The capital gain
realized is limited to the actual cash received so some clubs may
need to adjust the capital gain amounts before entering the capital
gain distributions. Instructions for doing are included. The total
merger consideration is $35.93 per Arena Resources share. Your
capital gain will be based on this total consideration with a limit
that the total capital gain can not be more than the total cash
received.
In addition to the
worksheet at the end of this set of steps, we also suggest to
download a spreadsheet created to help keep track of the figures
needed for this transaction. You can click here http://www.iclub.com/downloads/temp/Sandridge-Arena.xls
to download the spreadsheet file. A copy of Microsoft Excel, or a
program capable of working with Excel files will be required. If you
do not have a program available, we suggest a program such as Open
Office, which can be downloaded to your computer, or Google
Documents, which is accessed directly through a web page.
1.
Calculate the capital gain.
The total merger
consideration is $35.93 per Arena Resources share. This is $4.50 in
cash and 31.43 in SandRidge shares. Calculate the total value
received for your Arena Resources shares by multiplying 35.93 by the
total shares of Arena Resources owned.
Total Proceeds =
[35.93 x (# of Arena Resources shares owned)] –
(Reorganization fee)
Enter the total
proceeds amount in the dividend entry screen. Change the “type”
to Return of capital. Date the transaction 7/15/2010.
The security is
Arena Resources.
Save the
transaction.
The program will change
some of the Return of capital, if appropriate, to LTCG and STCG.
Look at your
transactions history and WRITE DOWN the amount for LTCG and STCG.
After you have recorded
these amounts, you can delete the Return of capital transactions (In
Club Accounting 3, click the Transactions heading, select the
transactions in question, and use the Delete button. In Club
Accounting Online, go to Accounting > Securities > View/Edit
Transactions; click the transaction description, and then use the
Delete button. Although the LTCG and STCG entries were
generated by the Return of capital entry you may need to delete them
separately in the program.
Next you need to
compare the sum of the capital gains to the total cash received,
excluding cash for fractional shares.
The total cash received
should be [4.50 x (# of Arena Resources shares held)] –
(Reorganization fee).
If your total capital
gains are less than or equal to the total cash received,
then skip to section 2, Accounting for Cash Received.
If your total capital
gains are greater than the total cash received, continue in
this section to adjust your capital gains so they are equal to your
total cash received.
Since the structuring
of this merger limits your capital gains to the cash received you
need to adjust your gains downward. This will be done by calculating
the total decrease needed and then apportioning the decrease to the
LTCG and STCG according to each type’s share of the total
calculated capital gains. Here are the items that need to be
calculated first:
Total Capital gain
= Total CG = LTCG + STCG
Total Decrease =
(LTCG + STCG) – (Total cash received)
% LTCG = LTCG /
(LTCG + STCG)
% STCG = STCG /
(LTCG + STCG)
With these calculated
you can calculate the final LTCG and final STCG.
If you have done the
calculations correctly, (Final LTCG + Final STCG) = Total cash
received.
If , (Final LTCG +
Final STCG) = Total cash received, go to the next section, Accounting
for Cash Received.
2.
Accounting for Cash Received
All of the following
entries use the cash dividend screen, in CA3 this is Transactions
> Cash Dividend or Distribution, and online at Accounting >
Cash Dividends.
Date these
transactions 7/15/2010.
The security
should be Arena Resources
Change the “type”
field to Long-term capital gain.
Amount should be
your LTCG as calculated above.
When this
transaction is complete, then repeat the process for your short-term
capital gain.
Change the “type”
field to Short-term capital gain.
Amount should be
your STCG as calculated above.
If you had to adjust
you capital gain, the amount of LTCG and STCG in these entries will
be the actual LTCG and actual STCG as adjusted above.
Finally, enter a return
of capital entry.
Change the “type”
field to Return of capital.
Amount should be:
(Total Cash received) – ( LTCG + STCG)
If your LTCG +
STCG = Total Cash Received, no return of capital entry is needed.
Continue to step
3, The Merger.
3. The
Merger
Go to Transactions >
Merger or Accounting > Securities > Record merger of
securities depending on the version of the software being used.
If you are unfamiliar with merger transactions you can get help at
this url:
http://www.iclub.com/support/kb/default.asp?page=normal_merger
Here is the information
you need to complete the merger.
Date:
7/16//2010
Old Security
or Merging Company: Arena Resources
Price per share
of old Security / Arena Resources: 35.98 (last trade) or
last valuation price.
Cash received:
See your broker statement for cash-in-lieu
New Security:
SandRidge (XRX)
Shares received
: 4.7771 x (#of Arena Resources shares owned)
(Remember to
include fractional shares.)
Save the
transaction and this is finally done.
A worksheet is provided
below to record the items that need to be calculated.
A. Total
Proceeds received.
35.93 x (# of
Arena Resources shares) =
____________________________
B. Total cash
received.
[4.50
x (# of Arena Resources shares)] – ( Reorganization fee, if
any) = ________________
Large Return of Capital
(ROC) entry amount is equal to A.
C. LTCG =
_____________________ (see transaction list after large ROC entry,
record here)
D. STCG =
____________________ (see transaction list after large ROC entry,
record here)
E. LTCG + STCG
= __________________ . Is this greater than B, Total cash received?
F. Return of
Capital amount = (Total Cash Received) – (LTCG + STCG)
= ______________
This is if LTCG + STCG
is less than Total Cash received.
Capital gain
adjustment, if LTCG + STCG is greater than Total Cash received.
G. Total
Decrease = (LTCG + STCG) – (Total Cash Received) =
__________________
H. % LTCG =
(LTCG)/ (LTCG + STCG) = _________________
I. % STCG =
(STCG)/ (LTCG + STCG) = _________________
J. Actual LTCG
= LTCG – [(Total decrease) x (%LTCG)] =
________________________.
This is the amount to
enter if LTCG + STCG is greater than Total Cash received.
K. Actual STCG
= STCG – [(Total decrease) x (%STCG)] =
________________________.
This is the amount to
enter if LTCG + STCG is greater than Total Cash received.
L. Shares of
SandRidge Received = 4.7771 x (# of Arena Resources shares owned) =
________________.
(For the merger
transaction)
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