This merger gives Pharmacyclics shareholders 3 choices. They may receive all cash, a combination of cash and AbbVie shares and only AbbVie shares. Each option has different tax consequences. Instructions for each option will be given. The all AbbVie share option was oversubscribed so the offer was prorated. In addition, Pharmacyclics shareholders who did not tender their shares and had their shares involuntarily converted to Abbvie shares had a different proration amount. All the information below is from the information available from the S-4/A filed with the SEC and from AbbVie press releases.
First, if you have made any entries for this transaction in the Club Accounting software, you should delete them. Depending on the payment option, to record this merger in Club Accounting 3 will require multiple entries in the accounting software. The basic outline of these entries where both cash and shares were received is given below:
Calculate the capital gains, both long-term (LTCG) and short-term (STCG) on a block by block basis. Adjust for the structure of the merger (Gain can be no greater than cash received and losses may not be recognized.)
Enter capital gain distributions for the LTCG and STCG.
Enter a smaller Return of capital for the remainder of the cash received, if any.
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 may differ slightly depending on proration amounts. For those tendering shares with the mixed option the total merger consideration is $261.202 per Pharmacyclics 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.
The rest of this FAQ is divided into three large sections, depending on if your club chose the Mixed Option, the All Shares, or the All Cash Option.
Each sectionsection is self-contained, so if your club chose the All Cash option, you do NOT need to follow the steps for the mixed option, or the All Shares option.
If you are not sure which option the club chose, CHECK WITH YOUR BROKER. Do not try to guess which option the club chose.
Steps for the mixed option are listed just below.
To jump to the All Shares option, click HERE.
To jump to the All Cash option, click HERE.
In this option Pharnmacyclics shareholders received $152.25 in cash plus 1.6639 AbbVie shares per Pharmacyclics share. The total merger consideration is 261.202 per Pharmacyclics share. This is $152.25 in cash and 108.952 in AbbVie shares (1.6639 shares x $65.48 per share).
1. Calculate the capital gain.
The total merger consideration is $261.202 per Pharmacyclics share. This is $152.25 in cash and 108.952 in AbbVie shares (1.6639 shares x $65.48 per share). Calculate the total value received for your Pharmacyclics shares by multiplying 261.202 by the total shares of Pharmacyclics owned. This must be done on a block by block basis. (A block is generated each time you make a purchase.)
Total Proceeds = [261.202 x (# of Pharmacyclics shares owned in each block)]. (Do this calculation for each block of shares.)
Write down the total proceeds amount on paper or spreadsheet for each block of Pharmacyclics shares owned. From the total proceeds subtract the cost basis of that particular block. This will give you the gain for each block of Pharmacyclics shares using the total proceeds. Ignore any blocks with a loss. The cost basis can be found by starting a partial sale of Pharmacyclics. A block selection screen will appear with the date purchased, number of shares and current cost basis for each block. Copy this information then cancel the sale.
Next calculate the cash received for each block, for those blocks with a capital gain. The equation for this is [152.25 x (# of Pharmacyclics shares owned in each block)]. For each block compare the cash received for that block with the capital gain calculated previously for that block. The smaller of the numbers is your gain from that block. Remember to ignore any blocks with a calculated loss using the total proceeds equation. Once you have the adjusted capital gain for each block with a gain, which is the smaller of a) the cash received or b) the total proceeds gain, add all the gains from each block with a gain. This will be your total capital gain for this merger. Remember to differentiate between short term and long-term gains. (Check the purchase date of each block and compare it to the merger completion date of 5/26/2015.)
You should now have a figure for long-term and short-term capital gains recognized from this merger. If this amount is less than the total cash received, not including cash-in-lieu for fractional shares, then subtract the sum of your capital gains from the total cash received. This will be [152.25 x (total # of Pharmacyclics shares owned)] – (sum of capital gains). This amount will be entered as a return of capital.
A worksheet is provided at the end of these instructions to record the items that need to be calculated.
2. Accounting for Cash Received
All of the following entries use the cash dividend screen, in CA3 this is Transactions > Cash Dividend or Distribution.
Date these transactions 5/25/2015
The security should be Pharmacyclics
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, if needed.
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
Go to Transactions > Merger. 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: 5/26/2015
Old Security or Merging Company: Pharmacyclics (PCYC)
Price per share of old Security /Pharmacyclics: Use the last valuation price
Cash received: See your broker statement for cash-in-lieu
New Security: AbbVie (ABBV)
Shares received: 1.6639 x (#Pharmacyclics shares owned)
(Remember to include fractional shares.)
Save the transaction and this is finally done.
There are two potential ways to handle this option, depending on if the club tendered shares or not. As mentioned earlier, if you are not sure which to use, CHECK WITH YOUR BROKER. Do not try to guess which option the club chose.
In this option Pharnmacyclics shareholders were to receive only AbbVie shares. This option was oversubscribed. The proration amount for those who tendered their Pharmacyclics shares was 61.66%. In this scenario 61.66% of the shares tendered were exchanged for AbbVie at an exchange ratio of 3.9879 AbbVie shares for each Pharmacyclics shares. For the shares not exchanged for AbbVie shares, Pharmacyclics shareholders received $ 261.25 in cash. Pharmacyclics shareholders who did not tender their shares had a different proration ration. In their case only 47.38% of their shares were exchanged for AbbVie shares at the same exchange ration as tendering shareholders. The remaining non-exchanged shares were sold at 261.25 per Pharmacyclics share.
The first step in this
Determine the mix of cash and Abbvie shares received for each Pharmacyclics shares.
For those who tendered their Pharmacyclics shares the # of AbbVie shares received will be .6166 x 3.9879 = 2.4589. At $65.48 per Abbvie share this is worth $161.009. In addition, an amount of cash will be received equal to .3834 x 261.25 = 100.163. The total merger consideration for Pharmacyclics shareholders who tendered their shares and chose the all share option will be 261.172.
For those who did not tender their Pharmacyclics shares the # of AbbVie shares received will be .4737 x 3.9879 = 1.8891. At $65.48 per Abbvie share this is worth $123.698. In addition an amount of cash will be received equal to .5263 x 261.25 = 137.496. The total merger consideration for Pharmacyclics shareholders who did not tender their shares and chose the all share option will be 261.194.
1. Calculate the capital gain.
The total merger consideration per Pharmacyclics share will be determined by whether shares were tendered or not. This will be either 261.172 or 261.194. Multiply the appropriate amount by the total # of Pharmacyclics shares owned. This will be your total merger consideration. Do this for each block (purchase) of Pharmacyclics.
Write down the total proceeds amount on paper or spreadsheet for each block of Pharmacyclics shares owned. From the total proceeds subtract the cost basis of that particular block. This will give you the gain for each block of Pharmacyclics shares using the total proceeds. Ignore any blocks with a loss. The cost basis can be found by starting a partial sale of Pharmacyclics. A block selection screen will appear with the date purchased, number of shares and current cost basis for each block. Copy this information then cancel the sale.
Next calculate the cash received for each block, for those blocks with a capital gain. The equation for this is [100.163 x (# of Pharmacyclics shares owned in each block)] or [137.496 x (# of Pharmacyclics shares owned in each block)] depending on your situation. For each block compare the cash received for that block with the capital gain calculated previously for that block. The smaller of the numbers is your gain from that block. Remember to ignore any blocks with a calculated loss using the total proceeds equation. Once you have the adjusted capital gain for each block with a gain, which is the smaller of a) the cash received or b) the total proceeds gain, add all the gains from each block with a gain. This will be your total capital gain for this merger. Remember to differentiate between short term and long-term gains. (Check the purchase date of each block and compare it to the merger completion date of 5/26/2015.)
You should now have a figure for long-term and short-term capital gains recognized from this merger. If this amount is less than the total cash received, not including cash-in-lieu for fractional shares, then subtract the sum of your capital gains from the total cash received. This will be either [100.163 x (total # of Pharmacyclics shares owned)] – (sum of capital gains) or [137.496 x (total # of Pharmacyclics shares owned)] – (sum of capital gains) . This amount will be entered as a return of capital.
2. Accounting for Cash Received
All of the following entries use the cash dividend screen, in CA3 this is Transactions > Cash Dividend or Distribution.
Date these transactions 5/25/2015
The security should be Pharmacyclics
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, if needed.
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
Go to Transactions > Merger. 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: 5/26/2015
Old Security or Merging Company: Pharmacyclics (PCYC)
Price per share of old Security /Pharmacyclics: Use the last valuation price
Cash received: See your broker statement for cash-in-lieu
New Security: AbbVie (ABBV)
Shares received: 2.4589 x (#Pharmacyclics shares owned) For tendered shares scenario
1.8891 x (#Pharmacyclics shares owned) For non-tendered shares scenario
(Remember to include fractional shares.)
Save the transaction and this is finally done.
A worksheet is provided at the end of these instructions to record the items that need to be calculated.
If you chose the all cash option, treat this merger as a sale of Pharmacyclics.
Date: 5/26/2015
Company: Pharmacyclics
Sell all shares held.
Sale Proceeds will be 261.25 x (#Pharmacyclics shares owned).
If you were charged a reorganization fee, the most advantageous way to account for it is to treat it as a sale commission.
A. Total Proceeds received per block of Pharmacyclics. (Choose appropriate option)
Y x (#Pharmacyclics shares in block) = ____________________________
Y = 261.202 for mixed option of tendered shares
Y = 261.172 for all share option of tendered shares
Y = 261.194 for non-tendered shares
B. Total cash received.
[C x (# of Pharmacyclics shares in block)] = ________________
C = 152.25 for mixed option of tendered shares
C = 100.163 for all share option of tendered shares
C = 137.496 for non-tendered shares
C. Cost Basis of this block of Pharmacyclics shares _______________ (from accounting records)
D. Total Proceeds LTCG = _____________________ (A-B) fill-in D or E as appropriate
E. Total Proceeds STCG = ____________________(A-B) fill-in D or E as appropriate
F. Actual LTCG ___________________ (the lessor of B or D.)
G. Actual STCG ____________________(the lessor of B or E.)
H. LTCG + STCG = __________________.
I. Return of Capital amount = (Total Cash Received) – (LTCG + STCG) = ______________
Use this if (LTCG + STCG) is less than Total Cash received.
J. Shares of Abbvie Received
Z x (# total of Pharmacyclics shares owned) = _________________. (For the merger transaction)
Z = 1.6639 for mixed option of tendered shares
Z = 2.4589 for all share option of tendered shares
Z = 1.8891 for non-tendered shares