Sprint Nextel completed its merger with Softbank on 7/10/2013 for cash and new Sprint Corporation stock. The SEC filing for this merger was found through the SEC's web site.
This merger gave Sprint Nextel shareholders a choice, to receive only shares in the new Sprint Corporation or to sell their Sprint Nextel shares. Due to an oversubscription to the sell option those choosing that option received a combination of cash and Sprint Corporation shares.
If you Chose to receive only shares in the new corporation:
For those choosing all Sprint Corporation shares this is a simple merger. You received one share of Sprint Corporation for each Sprint Nextel share. You have a choice of how to enter this transaction:
1.) Do nothing but change the security name to Sprint Corp.
2.) Do a simple merger of Sprint Nextel into Sprint Corporation
If you choose option 1 your Valuation Reports will start return calculations based on the purchase dates of Sprint Nextel purchases. If you choose option 2, the return calculations will be calculated as if you purchased Sprint Corporation on the effective date of the merger. Both options will keep original purchase dates for calculating capital gain holding periods.
If you Chose to sell your Sprint/Nextel Shares:
For those choosing the all cash option the result of this merger is a cash plus stock reorganization. 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 some calculations and multiple entries in the accounting software. The basic outline of these items is given below:
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. A spreadsheet to assist you is available for download by clicking here, or by going to (www.iclub.com/downloads/Gain Calculator Merger with Cash.xlsx) The total merger consideration is $7.1356 per Sprint Nextel share. Your capital gain will be based on this total consideration with a limit that the total capital gain cannot exceed the total cash received, excluding cash-in-lieu of fractional shares. These gains should be calculated on a block by block basis. No losses may be realized and losses on one block cannot offset gains on any other block.
1. Calculate the capital gain.
The total merger consideration is $7.1356 per Sprint Nextel share. This is $ 5.64758 in cash and $1.488 in Sprint Corp shares (.26174 Sprint share x $5.685 per share, the average of the opening and closing prices on the effective date).
If you have just one block of Sprint Nextel enter a Return of Capital transaction for the total of the value received. For example, for a single 100 share block enter a return of capital for 713.56. (Subtract any reorganization fee charged by your broker.) The accounting software will convert the return of capital into return of capital and capital gain amounts. View your transaction history and write down the capital gain amount. If this amount is greater than the total cash received reduce your gain to the total cash received.
Delete the full value received return of capital transaction just entered.
If you have multiple bocks of Sprint Nextel enter a mock sale of Sprint Nextel. In the shares sold enter any number LESS than the total shares held. Enter any amount for the total proceeds amount. Submit the sale. A block selection page will appear, write down the purchase date, cost basis and number of shares in each block. You will need this information to complete the calculation of the capital gains.
For each block calculate the total value received. This will be 7.1356 x (# shares in block). If you were charged a reorganization fee decrease your total value received by this amount. Prorate the reorganization fee among all the shares. This can be done by using the following formula: [(7.1356 x total Sprint Nextel shares) - reorganization fee] x[(shares in block)/(total shares)]
For each block calculate the total cash received. This will be 5.64758 x (# shares in block). If you were charged a reorganization fee decrease your cash received by this amount. It can prorated among all blocks using the following formula [(5.64758 x total Sprint Nextel shares) - reorganization fee] x[(shares in block)/(total shares)]
For each block calculate the capital gain realized. This will be total value received for the block minus the cost basis of that block as written down from the mock sale. Be sure to separate the short-term gains from the long-term gains. If the gain for the block is greater than the cash received for this block, then the gain is reduced to the cash received.
Add all the blocks with short-term gains. Since losses cannot be realized, do not include any negative amounts from blocks with losses. The result will be your short-term capital gain entry amount.
Add all the blocks with long-term gains. Since losses cannot be realized, do not include any negative amounts from blocks with losses. The result will be your long-term capital gain entry amount.
Add your long-term gain entry to the short-term gain entry. Subtract this total from the total cash received. The result will be your return of capital entry amount. If done correctly the following will be true: total cash received = return of capital + long-term gains + short-term gains.
Next you need to compare the sum of the capital gains to the total cash received, excluding cash for fractional shares.
2. Make the Entries for capital gain and return of capital
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 7/9/2013
The security should be Sprint Nextel
For the long-term gains 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.
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
Since the surviving company has the same ticker symbol you can also treat the merger part of this transaction as a reverse split to reduce the number of shares owned. The return calculation on the valuation statement will use old Sprint Nextel cash flows for the calculations if this choice is used. If you believe Sprint Corp is a significantly different company after this merger then use the merger transaction below. If the merger transaction is used return calculation will assume a purchase of Sprint Corp on the effective date at the market value as the starting point for the return calculations. Since former Softbank shareholders will own over 70% of the new Sprint Corp the merger option is illustrated first.
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: https://www.iclub.com/support/kb/default.asp?page=normal_merger
Here is the information you need to complete the merger.
Old Security or Merging Company: Sprint Nextel (S)
Price per share of old Security / Sprint Nextel (S): Use the last valuation price
Cash received: See your broker statement for cash-in-lieu
New Security: Sprint Corp (S) (yes, the same symbol)
Shares received: .2617 x (# of Sprint Nextel shares owned)
(Remember to include fractional shares.)
Save the transaction and this is finally done.
If you choose to enter the merger as a reverse stock split the split ratio should be 26.17 for 100. This will reduce your number of shares in Sprint Nextel to the number of Sprint Corp shares received. Date the stock split 7/10/2013. Don’t forget to include cash received for fractional shares in the appropriate field in the stock split entry page. Finally, edit your security profile of Sprint Nextel to reflect the new name.
A worksheet is provided below to record the items that need to be calculated.
A spreadsheet is available to help calculate the gains for Sprint Nextel holdings consisting of multiple blocks.
A. Total Proceeds received:
7.1356 x (# of Sprint Nextel shares) = ____________________________
B. Total cash received.
[5.64758 x (# of Sprint Nextel shares)] – (Reorganization fee, if any) = ________________
Large Return of Capital (ROC) entry amount is equal to A minus any reorganization fee. Use this only if you have one block of Sprint Nextel share.
C. LTCG = _____________________ (from one method described above)
D. STCG = ____________________ (from one method described above)
E. LTCG + STCG = __________________.
F. Return of Capital amount = (Total Cash Received) – (LTCG + STCG) = ______________
G. Does Total Merger Cash received = LTCG + STCG + Return of Capital?
K. Shares of Sprint Corporation (formerly Sprint Nextel) Received = .26174 x (# of Sprint Nextel shares owned) = _________________. (For the merger transaction)