Lumentum Holdings (LITE) acquired Oclaro (OCLR) in a cash and stock deal. The SEC filing for this merger can be found at the Lumentum Holdings web site at: https://investor.lumentum.com/investors/sec-filings/default.aspx . Choose the form S-4/A dated 5/31/2018. An IRS form 8937 was not available on the Lumentum Holdings web site when these instructions were composed.
Resolution:
This merger is a cash-plus-stock reorganization. The companies planned for this merger to be a reorganization. The tax consequences discussed in form S-4/A assume this designation. They did not meet the requirements. In the press release announcing the completion of the merger, it was declared this is a fully taxable merger with cash. For tax purposes this is treated as a sale of Oclaro 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 Lumentum Holdings. All the information below is from the information available from the form S-4/A filed with the SEC and the Lumentum press release posted on the LITE web site. The first instructions are for users of the desktop software, Club Accounting 3. Instructions for Myiclub.com users follow later in this document. Value amounts in the instructions are rounded to 4 decimal places.
The total merger consideration is $8.2585 per Oclaro share. This is $5.60 in cash and $2.6585 in Lumentum Holdings shares (.0636 x 41.80). The closing price of Lumentum Holdings on the merger completion date was $41.80. Calculate the total value received for your Oclaro shares by multiplying 8.2585 by the total shares of Oclaro owned.
Total Proceeds = [8.2585 x (# of Oclaro shares owned)] – (Reorganization fee).
For example, if you owned 100 OCLR shares your total proceeds would be (825.85 – Reorganization fee).
Use the Suspense account to receive the sale proceeds. Date this transaction 12/10/2018.
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 $5.60 per Oclaro 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 Lumentum Holdings shares you received in this merger. For example, if you owned 100 Oclaro shares your cash portion of the merger consideration was $560.00 – reorganization fee. ([5.60 x 100] –reorganization fee).
Enter a buy transaction for the number of Lumentum Holdings shares entitled to receive in this merger. This will be .0636 x (# of Oclaro shares owned). For example if you owned 100 Oclaro shares then enter 6.36 Lumentum Holdings shares purchased (.0636 x 100).
Date the transaction 12/10/2018. 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 (2.6585 x # of Oclaro shares owned). For example, if you owned 100 Oclaro shares, then the total purchase cost would be 265.85.
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 12/11/2018. The share amount will be the NON-whole part of the shares bought in the buy transaction above. For example if you owned 100 Oclaro shares then you entered 6.36 Lumentum Holdings shares purchased. You would sell .36 Lumentum Holdings shares in this Sell transaction.
The total proceeds will be the cash-in-lieu amount listed on your broker statement.
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Use the Merger with cash security transaction.
Step 1. Choose Oclaro (OCLR) as the merging company and date the transaction 12/10/2018. Step 2. Select the option Transaction is fully taxable. Enter the following additional information:
Cash per share received: 5.60
Exchange ratio: .0636 to 1
Price per share of new shares: 41.80
Reorganization fee: From your broker statement, if one was charged.
Symbol of new company: LITE
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.
