Icon, plc (ICLR) acquired PRA Health Sciences (PRAH) in a cash and stock deal. The Form F-4/A SEC filing for this merger can be found on the SEC EDGAR site at https://www.sec.gov/Archives/edgar/data/0001060955/000114036121014371/nt10020839x2_f4a.htm .
Important note about this merger
This merger is a cash-plus-stock acquisition. The tax consequences are uncertain. The companies interpret the cash portion as a redemption (purchase) by PRAH of a fractional part of each PRAH share. The stock portion is considered to be a sale by PRAH shareholders of the remaining fractional part of each share for ICLR stock. In the SEC filing, the companies further state the IRS may disagree with their interpretation and may deem the cash portion as a special dividend. In addition, the companies state certain shareholders may need to consider the cash portion of the merger consideration as a dividend, even if the IRS agrees with the company interpretation. The instructions that follow are for the situation we believe will apply to nearly all investment clubs. If your club owned both ICLR and PRAH before the merger, there is a higher probability the cash portion will be determined to be a dividend. As it appears even practicing attorneys, which we are not, cannot agree on the interpretation and definite tax consequences of this merger, be forewarned that this merger may need to be edited or deleted and re-entered if/when the IRS challenges the companies’ interpretation of the merger structure.
For investment clubs this is a fully taxable merger with cash. For tax purposes this is treated as a sale of PRA Health Sciences 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 Icon, plc. All the information below is from the information available from the form F-4/A with the SEC. The first instructions are for users of the myICLUB.com software. Instructions for users of Club Accounting 3 follow later in this document.
Important note about mergers with cash: 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.
For Myiclub.com users
Use the Merger with cash security transaction.
Step 1. Choose PRA Health Sciences (PRAH) as the merging company and date the transaction 7/1/2021.
Step 2. Select the option Transaction is fully taxable. Enter the following additional information:
Cash per share received: 80.00
Exchange ratio: .4125 to 1
Price per share of new shares: 208.17 (opening price on 7/1/2021)
Reorganization fee: From your broker statement, if one was charged.
Symbol of new company: ICLR
Cash received: Cash-in-lieu amount from broker statement.
Other fields should auto-fill from the information already entered.