Jazz Pharmaceuticals (JAZZ) acquired GW Pharmaceuticals(GWPH) in a cash and stock deal.
This merger is a cash-plus-stock acquisition. This is a fully taxable merger with stock and cash as the merger consideration. For tax purposes this is treated as a sale of GW Pharmaceuticals 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 Jazz Pharmaceuticals. All the information below is from the information available from the DEFM14A filed with the SEC by GWPH. Here is a link to this filing
https://www.sec.gov/Archives/edgar/data/0001351288/000119312521081425/d320586ddefm14a.htm
The first instructions are for users of the myICLUB.com online accounting site. Instructions for the desktop software, Club Accounting 3, follow later in this document.
Use the Merger with cash security transaction.
Step 1. Choose GW Pharmaceuticals(GWPH) as the merging company and date the transaction 5/5/2021.
Step 2. Select the option Transaction is fully taxable. Enter the following additional information:
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The total merger consideration is $219.4333 per GW Pharmaceuticals share. This is $200 in cash and $19.4333 in Jazz Pharmaceuticals shares (0.12036 x 161.50). The opening price of Jazz Pharmaceuticals on the day after the merger completion date was $161.50. Calculate the total value received for your GW Pharmaceuticals shares by multiplying 219.4333 by the total shares of GW Pharmaceuticals owned.
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 $200 per GW Pharmaceuticals 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 Jazz Pharmaceuticals shares you received in this merger. For example, if you owned 100 GW Pharmaceuticals shares your cash portion of the merger consideration was $20,000.00 – reorganization fee. ([200 x 100] –reorganization fee).
Enter a buy transaction for the number of Jazz Pharmaceuticals shares you were entitled to receive in this merger. This will be 0.12036 x (# of GW Pharmaceuticals shares owned). For example, if you owned 100 GW Pharmaceuticals shares then enter 12.036 Jazz Pharmaceuticals shares purchased (0.12036 x 100).
Date the transaction 5/5/2021. 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 (19.4333 x # of GW Pharmaceuticals shares owned). For example, if you owned 100 GW Pharmaceuticals shares, then the total purchase cost would be 1943.33.
Choose the Suspense account as the source of funds for the purchase. Save the buy transaction.
Any fractional shares received in this merger will likely be sold by your broker.
Enter a Sell transaction for the fractional shares dated 5/6/2021. The share amount will be the NON-whole part of the shares bought in the buy transaction above. For example, if you owned 100 GW Pharmaceuticals shares then you entered 12.036 Jazz Pharmaceuticals shares purchased. You would sell .036 Jazz Pharmaceuticals shares in this Sell transaction.
The total proceeds will be the cash-in-lieu amount listed on your broker statement.
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.
