Broadcom completed its merger with VMware on 11/22/2023. The merger plan was a choice for VMware shareholders to choose between all-cash at $142.50 per VMware share or all stock at 0.252 AVGO shares per VMware share. There were limits on the cash and Broadcom stock distributed. So, if either the all cash or all stock election was oversubscribed, the oversubscribed election would be prorated to meet the limitation. Electing shareholders oversubscribed the all-stock option. Using the formula in the SEC form S-4 filing to determine the proration amount, VMware shareholders electing all stock would receive cash and stock as if 52.1% of shares exchanged would receive the original stock exchange ratio of 0.252 AVGO shares per VMW share and 47.9% received the cash payment of $142.50 per VMW share.
IRS form 8937 for this merger can be found through the VMW web site at:
https://investors.broadcom.com/financial-information/tax-information . The 8937 used a price of $979.50 as the Fair Market Value of each AVGO share. This was the average of the high and low prices on the merger completion date.
Important Reminders and Notes:
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. 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. 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.
Resolution: For VMware shareholders electing the all-cash option, this is entered as a sale of VMware for the cash received. The total amount should be $142.50 * (# of VMware shares).
For those electing the all-stock option, the proration process turned this into a stock and cash reorganization. Use the Merger with cash transaction to enter this transaction. The cash received is calculated from the proration amount and the $142.50 cash price in the merger. 142.50 * 0.479 = 68.2575. The stock exchange ratio is calculated from the proration value and the all-stock exchange value. This is 0.521 * 0.252 = 0.131292.
Instructions for myICLUB Users.
Use the Merger with cash transaction.
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