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MERGER: Windstream and Iowa Telecom
Issue:
How do I enter the Windstream and Iowa Telecom merger?
Cause:
Windstream completed its merger with Iowa Telecom 6/1/2010 for cash and Windstream stock.
The SEC filing for this merger can be found at through the Windstream web site at:
http://www.snl.com/irweblinkx/docs.aspx?IID=4121400
Choose the S-4A filing of 2/18/2010
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 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 $16.43 per Iowa Telecom 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.
Before you begin, there is a spreadsheet available on our site to help with some of the calculations:
http://www.iclub.com/downloads/WIN - IWA merger.xls
If you do not have a copy of Microsoft Excel, or a program capable of reading an Excel spreadsheet,
there is also a worksheet at the end of the transaction information, which can help with the calculations.
1. Calculate the Capital Gain
The total merger consideration is $16.43 per Iowa Telecom share. This is $7.90 in cash and $8.53 in Windstream shares.
Calculate the total value received for your Iowa Telecom shares by multiplying 16.43 by the total shares of Iowa Telecom owned.
Total Proceeds = [16.43 x (# of Iowa Telecom shares owned)] - (Reorganization fee)
Enter the total proceeds amount in the dividend entry screen. Change the "type" to Return of capital. Date the transaction 5/31/2010. The security is Iowa Telecom. 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 transaction. 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 [7.90 x (# of Iowa Telecom shares held)] - (Reorganization fee).
If your total capital gains are less than or equal to the total cash received skip to the next section, 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 the 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.
Final LTCG = LTCG - [(Total Decrease) x (% LTCG)]
Final STCG = STCG - [(Total Decrease) x (% 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. In myiclub.com, go to Accounting > Cash Dividends.
Date these transactions 5/31/2010
The security should be Iowa Telecom
Change the "type" field to Long-term capital gain.
Amount should be your LTCG as calculated above.
Next 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: 6/1/2010
Old Security or Merging Company: Iowa Telecom
Price per share of old Security / Iowa Telecom: Use the last valuation price
Cash received: See your broker statement for cash-in-lieu
New Security: Windstream (WIN)
Shares received: .804 x (# of Iowa Telecom shares owned)
(Remember to include fractional shares.)
Save the transaction and the transaction is complete.
Following is the worksheet to help calculate the items needed for this transaction.
- Total Proceeds received.
16.43 x (# of Iowa Telecom shares) =____________________________
- Total cash received.
[7.90 x (# of Iowa Telecom shares)] – ( Reorganization fee, if any) = ________________
Large Return of Capital (ROC) entry amount is equal to A.
- LTCG = _____________________ (see transaction list after large ROC entry, record here)
- STCG = ____________________ (see transaction list after large ROC entry, record here)
- LTCG + STCG = __________________ . Is this greater than B, Total cash received?
- 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:
- Total Decrease = (LTCG + STCG) – (Total Cash Received) = __________________
- % LTCG = (LTCG)/ (LTCG + STCG) = _________________
- % STCG = (STCG)/ (LTCG + STCG) = _________________
- Actual LTCG = LTCG – [(Total decrease) x (%LTCG)] = ________________________.
This is the amount to enter if LTCG + STCG is greater than Total Cash received.
- Actual STCG = STCG – [(Total decrease) x (%STCG)] = ________________________.
This is the amount to enter if LTCG + STCG is greater than Total Cash received.
Share calculation for the merger transaction
- Shares of Windstream Received = .804 x (# of Iowa Telecom shares owned) = _________________.
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