CVS (CVS) acquired Aetna (AET) in a cash and stock deal. The SEC filing for this merger was posted in the Investor Relations section of the CVS web site; we used the S-4/A dated 2/9/18.
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 Aetna 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 CVS. All the information below is from the information available from the form S-4/A 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.
The total merger consideration is $212.2502 per Aetna share. This is $145.00 in cash and $67.2502 in CVS shares (.8378 x 80.27). The closing price of CVS on the merger completion date was $80.27. Calculate the total value received for your Aetna shares by multiplying 212.2502 by the total shares of Aetna owned.
Total Proceeds = [212.2502 x (# of Aetna shares owned)] – (Reorganization fee).
For example, if you owned 100 AET shares your total proceeds would be (21,225.02 – Reorganization fee).
Use the Suspense account to receive the sale proceeds.
Date this transaction 11/28/2018.
Transfer from the Suspense account to the Broker account (or bank if appropriate), all merger consideration cash received from this merger transaction. This will be the amount of the $145.00 per Aetna share minus any reorganization fee charged. 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 CVS shares you received in this merger. For example, if you owned 100 Aetna shares your cash portion of the merger consideration was $14,500.00 – reorganization fee. ([145.00 x 100] –reorganization fee).
Enter a buy transaction for the number of CVS shares entitled to receive in this merger. This will be .8378 x (# of Aetna shares owned). For example if you owned 100 Aetna shares then enter 83.78 CVS shares purchased (.8378 x 100).
Date the transaction 11/28/2018. 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 (67.2502 x # of Aetna shares owned). For example, if you owned 100 Aetna shares, then the total purchase cost would be 6725.02.
Choose the Suspense account as the source of funds for the purchase. Save the buy transaction.
The fractional shares received in this merger will likely be sold by your broker.
Enter a Sell transaction for the fractional shares dated 11/29/2018. The share amount will be the NON-whole part of the shares bought in the buy transaction above. For example if you owned 100 Aetna shares then you entered 83.78 CVS shares purchased. You would sell .78 CVS 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 Aetna (AET) as the merging company and date the transaction 11/28/2018.
Step 2. Select the option Transaction is fully taxable. Enter the following additional information:
Cash per share received: 145.00
Exchange ratio: .8378 to 1
Price per share of new shares: 80.27
Reorganization fee: From your broker statement, if one was charged.
Symbol of new company: CVS
Cash received: Cash-in-lieu amount from broker statement.
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.