Shire (SHPG) acquired Baxalta (BXLT) in a cash and stock deal. The SEC filing (Proxy statement/S-4) for this merger was found in the Investor Relations area of the Shire web site.
This merger is a cash plus stock reorganization, which are becoming more and more frequent in recent years. This is a fully taxable merger with cash. For tax purposes this will appear in your accounting records as a sale of Baxalta for the value of the cash and stock received. Some of the proceeds from the sale (the value of the stock received) is used to purchase Shire. All the information below is from the information available from the S-4 filed with the SEC. The first instructions are for users of the desktop software, Club Accounting 3. Instructions for Myiclub.com users follow later in this document.
1. Sell Transaction
The total merger consideration is $46.4751 per Baxalta share. This is $18.00 in cash and $28.4751 in Shire shares (.1482 x 192.14). The closing price of Shire on the merger completion date was $192.14. Calculate the total value received for your Baxalta shares by multiplying 46.4751 by the total shares of Baxalta owned.
Total Proceeds = [46.4751x (# of Baxalta shares owned)] – (Reorganization fee).
Use the Suspense account to receive the sale proceeds.
Date this transaction 6/3/2016.
2. Transfer Cash Received
Transfer from the Suspense account to the Broker account (or bank if appropriate), all cash received from this merger transaction. This will be the amount of the $18.00 per Baxalta share. If your Suspense account balance was zero when you entered the sell transaction above, then the balance after transferring the merger cash received will be the total purchase price of the Shire shares you received in this merger. For example, if you owned 100 Baxalta shares your cash portion of the merger consideration was $1800.00. (18 x 100).
3. Buy Transaction
Enter a buy transaction for the number of Shire shares entitled to receive in this merger. This will be .1482 x (# of Baxalta shares owned). For example if you owned 100 Baxalta shares then enter 14.82 Shire shares purchased (.1482 x 100).
Date the transaction 6/3/2016. The total purchase price will be the amount remaining in the Suspense account, if the Suspense balance was zero when this process was started. The amount should be (28.4751 x # of Baxalta shares owned. For example, if you owned 100 Baxalta shares, then the total purchase cost would be 2847.51.
Choose the Suspense account as the source of funds for the purchase, and save the buy transaction.
4. Fractional Share Sale
The fractional shares received in this merger will likely be sold by your broker.
Enter a Sell transaction for the fractional shares dated 6/4/2016. The share amount will be the NON-whole part of the shares bought in the buy transaction above. For example if you owned 100 Baxalta shares then you entered 14.82 Shire shares purchased. You would sell .82 Shire shares in this Sell transaction.
The total proceeds will be the cash-in-lieu amount listed on your broker statement.
For Myiclub.com users
Use the Merger with cash security transaction.
Step 1. Choose Baxalta (BXLT) as the merging company and date the transaction 6/3/2016.
Step 2. Select the option Transaction is fully taxable. Enter the following additional information:
Other fields should auto-fill from the information already entered.
Note: In Merger with cash transactions, realized capital gains and the cost basis of the new shares have a component dependent on the price per share entered in the entry screens. In our experience brokers tend to use the price per share published by the companies on their websites in their guidance to shareholders. If the companies publish guidance with a share price, we use that share price in our instructions to minimize possible differences between the accounting records and broker information. In cases where no guidance is available, we will choose the lower of the opening or closing price on the effective date. Either of these prices is acceptable to the IRS and by choosing the lower price some realized capital gains will be deferred to a later date. However, there is always the chance the price we choose will not be the price chosen by your broker. The gain from the merger and cost basis of the new shares recorded in your accounting records will then differ from your broker information. Because of the lack of detail in the tax code, both our choice and your broker’s choice would be reasonable estimates of market value for the shares received. Your records are NOT incorrect because they differ from your broker. Tax return forms do have specific areas to report these usually small differences. Our tax printer software handles these adjustment entries automatically in the normal operation of the software.