ACE Limited (ACE) acquired Chubb (CB) in a cash and stock deal. ACE decided to have the merged company operate using the Chubb name and ticker symbol.

The SEC filing for this merger can be found at through the (new) Chubb web site at:

https://d1lge852tjjqow.cloudfront.net/CIK-0000896159/f4dc9a2d-f9ad-4390-bc06-7d1fa75712ec.pdf  This link will open an HTML version of the S-4/A filing.

 

Resolution:

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 is treated as a sale of (old) Chubb for the value of the cash and stock received. Some of the proceeds from the proceeds (the value of the stock received) is used to purchase (new) Chubb. All the information below is from the information available from the S-4/A filed with the SEC. The first instructions are for users of the desktop software, Club Accounting 3. Because the ticker symbols of the old and new company are identical, myiclub users may need to use these instructions if the online software does not allow a merger with cash in this case.

 

1. Sell Transaction

The total merger consideration is $129.4038 per (old) Chubb share. This is $62.93 in cash and $66.4738 in (new) Chubb shares (.6019 x 110.44). The opening price of (new) Chubb on the merger completion date was $110.44. Calculate the total value received for your (old) Chubb shares by multiplying 129.4038 by the total shares of (old) Chubb owned.

Total Proceeds = [129.4038 x (# of (old) Chubb shares owned)] – (Reorganization fee).

Use the Suspense account to receive the sale proceeds.

Date this transaction 1/13/16

 

2. Transfer Cash Received

Transfer from the Suspense account to the Broker account (or bank if appropriate), all cash received from this transaction. This will be the sum of the $62.93 per (old) Chubb share.  If your Suspense account balance was zero when you entered the sell transaction above, then the balance after transferring the cash received will be the total purchase price of the (new) Chubb shares you received in this merger.

 

3. Buy Transaction

Enter a buy transaction for the number of shares entitled to receive in this merger. This will be .6019 x (# of (old) Chubb shares owned).  For example if you owned 100 (old) Chubb shares then enter 60.19 shares purchased (.6019 x 100).

Date the transaction 1/14/16.  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 (66.4738 x # of (old) Chubb shares owned. For example, if you owned 100 (old) Chubb shares, then the total purchase cost would be 6647.38.

Choose the Suspense account as the source of finds for the purchase.

 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 1/15/2015. The share amount will be the NON-whole part of the shares bought in the buy transaction above.  For example if you owned 100 (old) Chubb shares then you entered 60.19 shares purchased. You would sell .19 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” transaction.

Step 1 - Choose Chubb (CB) as the merging company and date the transaction 1/14/2016.

Step 2 - Select the option Transaction is fully taxable (very important).

Enter the following additional information:

Cash per share received: 62.93

Exchange ratio: .6019 to 1

Price per share of new shares: 110.44

Reorganization fee:  From your broker statement, if one was charged.

Symbol of new company: CB

Cash received: Cash-in-lieu amount from broker statement.

Other field should auto-fill from the information already entered.

 

Notes:

Since the ticker symbols of the old and new company are identical, myiclub may prevent this transaction as it appears to be a merger of a company into itself. If this happens, use the ACE symbol of ACE Limited for the merger. You will then need to merge ACE into (new) CB on a 1:1 share basis. Another alternative is to use the instructions at the beginning of this document for the desktop version, Club Accounting 3.

 

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 chosen 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. These prices are 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 and cost basis recorded in your accounting records will then differ from your broker information. Because of the lack of detail in the tax code, both choices 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.