Actavis completed a merger with Forest Laboratories on 7/1/2014. Forest Labs shareholders had 3 options:
Due to proration rules, shareholders choosing All Stock, ended up receiving cash and Actavis stock, but at a different rate than those that chose Cash and Stock for their primary election. The prospectus for this merger was posted on the Actavis web site.
How to enter this merger depends on the option chosen by the shareholder. The All Cash option can be treated as a sale. The other two options are a merger-with-cash-plus-stock reorganization. All the information below is from the information available from the prospectus filed with the SEC and the press release with the final proration amounts for the shareholder options.
If you have made any entries for this transaction in the Club Accounting software before reading these steps, you should delete them.
If your club chose the All Cash option, you can skip a majority of this FAQ, and go directly to the Cash Only Option, near the end of the FAQ. If your broker statement shows any shares received however, continue with the steps below.
Because this transaction can require some calculations outside of the accounting system, we have linked two files here.
Gain Calculator Merger with Cash - An excel file to help break down capital gains on a block by block basis. This is pre-filled with example entries for the Cash and Stock option, but the relevant numbers can be adjusted for the Stock only option.
Actavis Worksheet - A text file showing all of the figures that might need to be calculated outside of the accounting system. This is to help keep track of the calculations described in the FAQ, and can be printed out in lieu of simply jotting numbers down on a pad of paper while working.
Because of proration, the Stock and Cash and Stock options will require multiple entries in the accounting software. The basic outline of these entries will be:
The capital gain realized is limited to the actual cash received, so you 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 the value of the cash and Actavis shares received per Forest Laboratories share. Your capital gain will be based on this total consideration.
The total capital gain can not exceed the total cash received, excluding cash-in-lieu of fractional shares.
Initial Capital Gain calculation:
To make the return of capital entry, you will first need to determine the club’s Total Proceeds.
Once you have the Total Proceeds calculated, that needs to be entered into the accounting system. Make a dividend entry (Transactions > Dividend, or Accounting > Securities > Cash Dividend, depending on if you are using myICLUB or desktop Club Accounting 3).
The program will change some of the Return of capital (if appropriate), to Long Term and Short Term Capital gain (LTCG and STCG).
Look at your transactions history and Write Down the amount(s) for LTCG and STCG.
After you have recorded these amounts, make certain you Delete the Return of Capital transaction, as well as any capital gain entries on the same date for Forest Laboratories.
Next, you need to compare the sum of the Capital Gains to the total merger cash received, excluding cash for fractional shares.
The Total Merger Cash Received should be:
From here there are two options:
Adjusting Capital Gains
If your total capital gains are greater than the Total Merger Cash Received, they will need to be adjusted, so that they become equal to your Total Merger Cash Received.
Since the structuring of this merger limits your capital gains to the cash received, the following steps will help you determine what adjustments to make. This will be done by calculating the percent of the total capital gain that was LTCG and STCG. The percentage of each type of capital gain contributed to the total will then be multiplied by the maximum gain, the total merger cash. This will give the dollar amount each type of gain contributed to the total capital gain.
Total Merger Cash Received = 26.04 (for Cash and Stock) -or- 25.67 (for All Stock) x (# of Forest shares owned)
Total Capital gain = Total CG = LTCG + STCG (From the large return of capital entry)
% LTCG = LTCG/ (LTCG + STCG)
% STCG = STCG/ (LTCG + STCG)
With these calculated you can calculate the Final LTCG and Final STCG.
Final LTCG = %LTCG x (Total Merger cash)
Final STCG = %STCG x (Total Merger cash)
If you have done the calculations correctly, (Final LTCG + Final STCG) will now equal your Total Merger Cash Received, and you can continue to the next section, Accounting for Cash Received.
Depending on your circumstance, it may take as many as three entries to account for the Cash Received. This section details all three potential transactions. Make sure to check each one to see if it applies to you.
All three of the transactions listed below have some information in common:
If you have any Long Term Capital Gains, make sure to change the “type” field to Long-term capital gain.
Enter the amount of your LTCG as calculated above, and complete the transaction.
If you have any Short Term Capital Gains, make sure to change the “type” field to Short-term capital gain.
Enter the amount of your STCG as calculated above, and complete the transaction
NOTE: If you had to adjust you capital gain, the amount of LTCG and STCG in these entries will be the Final LTCG and Final STCG as calculated from the Adjusting Capital Gains section.
If your LTCG + STCG = Total Cash Received, you are now ready to enter the merger. If your capital gains were less than the Total Cash Received, then make one final entry:
Change the “type” field to Return of capital.
Enter (Total Cash received) – (LTCG + STCG) as the amount, and complete the transaction
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 merger information if your club chose the Cash and Stock Option.
Date: 7/1/2014
Old Security or Merging Company: Forest Laboratories (FRX)
Price per share of old Security / Forest Laboratories: Use the last valuation price
Cash received: See your broker statement for cash-in-lieu
New Security: Actavis (ACT)
Shares received: .3306 x (# of Forest Laboratories shares owned)
(Remember to include fractional shares.)
Save the transaction and this is finally done.
Here is the merger information if your club chose the Stock Only Option.
Date: 7/1/2014
Old Security or Merging Company: Forest Laboratories (FRX)
Price per share of old Security / Forest Laboratories: Use the last valuation price
Cash received: See your broker statement for cash-in-lieu
New Security: Actavis (ACT)
Shares received: .3326 x (# of Forest Laboratories shares owned)
(Remember to include fractional shares.)
Save the transaction and this is finally done.
If the Cash Option was chosen treat this as a sale. Here is the information needed for the sale transaction.
Date: 7/1/2014
Security : Forest Laboratories (FRX)
Sell all shares
Total consideration: 86.81 x(# of Forest Laboratories shares owned)
Commissions/Fees : See your broker statement. Include any “reorganization fee” here.
