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MERGER: Express Scripts (ESRX) and Medco Health (MHS)
Issue:
How do I enter the Express Scripts (ESRX) and Medco Health (MHS) merger?
Cause:
Express Scripts completed its merger with Medco Health on 4/2/2012 for cash and Express Scripts stock.
The SEC filing for this merger can be found through the Express Scripts web site at:
http://phx.corporate-ir.net/staging/phoenix.zhtml?c=69641&p=irol-sec
Choose the DEFM14A dated 11/21/2011
Resolution:
Due to the calculations required for this complex merger, please print out these instructions (worksheet at end) AND use the excel document.
PLEASE USE THIS EXCEL SHEET!
http://www.iclub.com/temp/ExpressMedcospreadsheet.xls
This merger is a cash-plus-stock reorganization. All the information below is from the information available from the DEFM14A filed with the SEC. The total value of the Express Scripts shares received used the opening price of ESRX on the merger date, 4/2/2012. Your broker may use a different price such as the closing price or an average. There are no set rules what price to use only that the price used be “reasonable”.
SUMMARY OF INSTRUCTIONS:
First, if you have made any entries for this transaction in the Club Accounting software, you should delete them. Recording this merger will require multiple entries in the accounting software. Below are the steps, and we ask that you please read through to understand:
- You will initially enter a specific type of dividend, called a “Return of Capital” transaction so the program can calculate the capital gain reportable for this merger.
- From this RoC, you will write down the capital gain, any long-term (LTCG) and/or 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 this are included. The total merger consideration is $74.557 per Medco Health share. Your capital gain will be based on this total consideration with a limit that the total capital gain cannot be more than the total cash received.
1: Calculate the capital gain.
The total merger consideration is $74.557 per Medco Health share. This is $28.80 in cash and $45.757 in Express Scripts shares. Calculate the total value received for your Medco Health shares by multiplying 74.557 by the total shares of Medco Health owned.
Total Proceeds = [74.557 x (# of Medco Health shares owned)] – (Reorganization fee)
STEP ONE: To determine the LTCG or STCG you MUST enter a dividend transaction, called a “Return of Capital.” Go to where you would normally enter in a dividend. Next, change the “type” to Return of Capital. Date the transaction 4/1/2012. The security is Medco Health. Save the transaction.
When you enter a Return of Capital, the program will calculate the LTCG and/or STCG (both if appropriate).
Once entered, you must then look at your transactions history and WRITE DOWN the amount for LTCG and STCG.
STEP TWO: After you have recorded these amounts, DELETE the Return of capital transaction as it was only used to determine the LTCG and/or STCG. You may end up deleting two entries (one for short and one for long, please keep this in mind).
STEP THREE: 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 [28.80 x (# of Medco Health 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.
STEP FOUR: 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)]
STEP FIVE: If you have done the calculations correctly, then
(Final LTCG + Final STCG) = Total cash received.
If (Final LTCG + Final STCG) = Total cash received, go to the next section, Accounting for Cash Received.
BEFORE GOING ANY FURTHER: Double Check that you have deleted the original Return of Capital transaction, as described in STEP TWO, above.
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, it’s Accounting > Cash Dividends.
Date these transactions 4/1/2012
The security should be Medco Health
If you already have entries for long and short term capital gain, then skip to Return of Capital
LONG TERM CAPITAL GAIN
Change the “type” field to Long-term capital gain.
Amount should be your LTCG as calculated above.
SHORT TERM CAPITAL GAIN
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.
RETURN OF CAPITAL
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, then no return of capital entry is needed.
Once this step is done, you have taken care of accounting for most of the cash received as part of the merger. You will still likely need to enter cash for fractional shares as part of the merger, but the larger amount of cash has now been accounted for.
Next, continue to step 3, The Merger.
3. The Merger
Go to Transactions > Merger or Accounting > Securities > Record merger of securities depending on whether you are using the desktop or the online accounting. 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: 4/2/2012
- Old Security or Merging Company: Medco Health
- Price per share of old Security / Medco Health: 70.30
- Cash received: See your broker statement for cash-in-lieu
- New Security: Express Scripts (ESRX)
- Shares received : .81 x (# of Medco Health 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.
WORKSHEET
A. Total Proceeds received.
74.557 x (# of Medco Health shares) = ¬¬¬¬¬¬¬¬¬¬¬¬¬¬¬¬¬¬¬¬¬¬¬¬____________________________
B. Total cash received.
[28.80 x (# of Medco Health 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 Express Scripts Received = .81 x (# of Medco Health shares owned) = _________________.
(For the merger transaction)
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