Tim Horton's (THI) and Burger King (BKW) merge to form Restaurant Brands International (QSR) - steps for Tim Horton's shareholders

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 1395 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.

  • Date: 12/12/2014
  • Security: Tim Horton’s (THI)
  • Sale Total : C$ 88.50 x (number of THI shares owned)

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.

  • 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: 3.0879 x (#Tim Horton’s shares owned)

(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:

  • Enter a large Return of capital transaction to have the program calculate the capital gain reportable for this merger.
  • Compare the total gain to the cash received.
  • If the gain is less than or equal to the cash received, enter the capital gain without adjustment.
  • If the gain is more than the cash received, follow the directions for adjusting the gain.
  • Enter the actual merger transaction.

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.

  • Block A total consideration = 8467.65 x 25/100 = 2116.91
  • Block B total consideration = 8467.65 x 75/100 = 6350.74
  • Check your purchase history for the date and cost basis of each block.
  • Block A cost basis 500; purchase date 2/2/2014
  • Block B cost basis 1000; purchase date 11/4/2012
  • Calculate amount and type of gain for each block.
  • Block A short-term gain of 1616.91
  • Block B long-term gain of 5350.74
  • Calculate merger cash for each block. (Total merger cash x block shares/ total shares)
  • Block A cash = 56.26 x 25 shares/100shares = 1406.50
  • Block B cash = 56.26 x 75 shares/100shares = 4219.50
  • Determine actual reportable gain.
  • The reportable gain is the lesser of the total consideration gain or the cash received. In the example above both Block A and Block B have gains greater than the merger cash attributed to those blocks. The reportable gains are then reduced to the actual cash received.
  • Block A contributes a short-term gain of 1406.50. Block B contributes a long-term gain of 4219.50 as the cash is less than the total consideration gain for both blocks.
  • If a block would generate a loss, it cannot be used to reduce gain from a different block. Only include blocks that generate a gain to get the sum of all gains.
  • Once your total long-term and short-term gains are calculated enter appropriate capital gain distributions from Tim Horton’s. Date the transactions 12/11/2014. In the example above, a short-term capital gain distribution of 1406.50 would be entered and as well as a long-term capital gain distribution of 4219.50.
  • If you need to adjust the gain you most likely will not need to enter a return of capital transaction to account for the final cash amount. On rare occasions it may be necessary. Compare the total amount of the capital gain distributions entered to the total cash received. If more cash was received than the gains entered a Return of Capital transaction for the difference should be entered. To balance property the following requirement must be met: Total gains + Return of capital = total merger cash.

 

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) = ______________