NOTE: These steps are for clubs that held Tim Horton's shares prior to the merger. If your club held Burger King shares prior to the merger, please see FAQ 395 on entering this merger for Burger King shareholders.
Tim Horton’s and Burger King merged to form Restaurant Brands International effective 12/12/2014. The merger gave multiple options for the shareholders of each company involved. Depending on the option chosen the merger can be a fully taxable, partially taxable or non-taxable transaction. Some options involved the receipt of cash denominated in Canadian dollars. The exchange rate was not specified in the merger transaction. The actual conversation rate for each shareholder will then depend on when their broker made the exchange and the exchange rate at the time of conversion. This cannot be known by the author of these instructions. Instead, an estimate of the amount will be given using the closing exchange rate on the first day of trading for Restaurant Brands International, 15 December 2014.
In addition, the options given to shareholders were subject to proration. In such cases, the actual cash or shares received for an option are not the proposed amounts in the SEC filing. The author’s search of the company websites and comments from some shareholders did not find evidence that there was proration in this case. Therefore these instructions use the announced amounts for all options. Be aware the instructions may need to be modified if clear evidence becomes available that proration did occur.
The SEC filing for this merger (425 filing of 11/5/2014) was found through the Tim Horton’s web site.
Tim Horton’s Resolution:
This merger has multiple choices for each company’s shareholders. Tim Horton’s shareholders will be covered first. All the information below is from the information available from the 425 filed with the SEC. The options that are easier to enter will be covered first and end with the cash plus shares option which is more complex.
1. All Cash Option
If your club chose the all cash option this transaction is treated as a sale of Tim Horton’s.
Here is the information you need to complete the merger.
At the closing exchange rate on 12/15/2014 this should be approximately US $76.02 per share. Check your broker statement for the exact amount.
Save the transaction and this is finally done.
2. All Shares Option
If your club chose the all share option this transaction is treated as a merger of Tim Horton’s into Restaurant Brands International. Go to Transactions > Merger for Club Accounting 3 or Accounting > Securities > Record Merger of Securities for myiclub.com. 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.
(Remember to include fractional shares. For example, if you owned 100 THI shares enter 308.79, 100 x 3.0879)
Save the transaction and this is finally done.
Be aware that the IRS may not agree with the assertions made by the company that this merger option qualifies for non-taxable status. It is possible an IRS ruling may determine the transaction is fully taxable and should be treated as a sale of Tim Horton’s for the market value of the QSR shares received. At the time these instructions were written the IRS had not made such a ruling on this transaction.
3. Cash and Shares Option
This merger is a cash plus stock reorganization. All the information below is from the information available from the 425 form filed with the SEC.
To record this merger will require multiple entries in the accounting software. The basic outline of these entries is given below:
The capital gain realized is limited to the actual cash received, but the gain is first determined by the value of cash and shares received. 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 the value of the cash and QSR shares received. The cash is subject to conversion from Canadian dollars to US dollars so only an estimate can be given here. The cash portion was reported as C$65.50 per Tim Horton’s share. Based on the closing exchange rate on 12/15/2014 this is about US $56.26 per share. You will need to check your broker statement for the exact amount.
The value of the QSR shares will depend on the price per share used. The closing price on the effective date, 12/12/2014, was US $35.41. The opening price on the first trading day was $37.22.
The total consideration will then be (Total cash + value of shares received). Get the total cash from your broker statement. The value of the shares received will be (35.41 x # of THI shares owned x .8025). Your capital gain will be based on this total consideration with a limit that the total capital gain cannot exceed the total cash received. Here is an example of a calculation of the total merger consideration for 100 shares of THI owned.
Cash portion of merger = 56.26 x 100 = 5626.00. Share portion of merger = 100 x 35.41 x .8025 = 2841.65. Total merger consideration = 5626 + 2841.65 = 8467.65. The amount of the total merger consideration, in the example above, would be 8467.65.
The program will convert some of this Return of Capital transaction into capital gain amounts. Check your transactions listing for the amount of these gains. Record (write down) the amounts listed as long-term and short-term. Compare the total gains to the cash received.
If the gains were more than the cash received, skip to the Adjust Gains section of these instructions, otherwise continue reading.
Delete the Return of Capital transaction for the amount of the total merger consideration.
Enter a Long-term Capital gain distribution for the long-term gain calculated by the program when the large Return of Capital transaction was entered.
Enter a Short-term Capital gain distribution for the short-term gain amount.
Subtract the total capital gain amount from the total cash received. (Total cash received – total gain recorded). Enter a small Return of capital from Tim Horton’s for the result of this calculation.
You can now skip to the Enter Merger section of the transaction.
Adjust Gains
You only need this section if your total gains are greater than the total cash received in the merger consideration. If that is not the case, skip down to the Enter Merger section. The structure of this transaction limits gains to the total cash received. We will go over the different possibilities starting with the simplest.
A.) All of your gains are either long-term or short-term.
Delete the large Return of Capital transaction.
Enter a Capital Gain distribution of the appropriate type (long-term or short-term) for an amount equal to the total merger consideration cash received.
Skip to the Enter Merger section
B.) You have a mix of long-term and short-term gains.
You have multiple purchases of THI. The gains need to be determined on a block by block basis.
Prorate the total merger consideration among all the blocks. Use the formula [Total merger consideration x (shares in block/total THI shares)]. Below is an example of block by block calculations for the 100 share example above. Assume 2 blocks, one of 25 shares and one of 75 shares.
Once your gains and any return of capital transaction are entered you are ready to complete the merger transaction.
Enter Merger 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 information you need to complete the merger.
Date: 12/12/2014
Old Security or Merging Company: Tim Horton’s (THI)
Price per share of old Security / Tim Horton’s: Use the last valuation price
Cash received: See your broker statement for cash-in-lieu
New Security: Restaurant Brands International (QSR)
Shares received: .8025 x (#Tim Horton’s shares owned)
(Remember to include fractional shares. For example, if you owned 100 THI shares enter 80.25 = 100 x .8025).
Save the transaction and this is finally done.
Be aware that the IRS may not agree with the assertions made by the company that this merger option qualifies for partially-taxable status. It is possible an IRS ruling may determine the transaction is fully taxable and should be treated as a sale of Tim Horton’s for the market value of the cash and QSR shares received, followed by a purchase of the QSR shares. At the time these instructions were written the IRS had not made such a ruling on this transaction.
A worksheet is provided below to record the items that need to be calculated.
A. Value of shares received. Mixed cash and share option
= (THI shares owned x .8025) x 35.41 = __________________________
B. Total cash received. Get from broker statement as it involves a C$ to US $ conversion.
= ________________
Large Return of Capital (ROC) entry amount is equal to A+B. ________________
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) = ______________
Use this if (LTCG + STCG) is less than Total Cash received.
Capital gain adjustment, if LTCG + STCG is greater than Total Cash received.
G. reportable LTCG = _________________
H. reportable STCG =
I. Shares of Restaurant Brands (QSR) Received (For the merger transaction).
All shares option = 3.0879 x (# THI shares owned) = _________________.
Mixed cash and shares option = .8025 x (# THI shares owned) = ______________
