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MERGER: Berkshire Hathaway and Burlington Northern
Issue:
How do I enter the Burlington Northern merger into Berkshire Hathaway?
Cause:
The SEC filing for this merger can be found at this web address: http://www.bnsf.com/investors/secfilings/berkshirehathaway_S4A_20091221.pdf While BNI shareholders could elect to receive all cash or all shares of BRK there was a provision that the proportion of shares to stock must stay at a certain ratio for the merger overall. This meant that BNI shareholders electing to receive only BRK shares for their BNI shares could receive fewer BRK shares and some cash. Conversely, BNI shareholders might receive some BRK shares even if they elected to receive all cash. From our information, the shares of BRK were oversubscribed, so to keep the ratio of shares to cash within the merger agreement, BNI shareholders received cash plus shares of Berkshire Hathaway even if they elected to receive only BRK shares. Note: clubs most likely received class B shares of Berkshire Hathaway, BRKB.
Resolution:
The resolution depends on whether you received all cash or cash and shares in Berkshire Hathaway.
If your club opted for all cash, treat this as a sale of BNI for the cash received.
If your club received cash and shares of BRK then the resolution is to enter this transaction in two parts.
- The first Transaction is a return of capital transaction to account for the cash received for BNI shares. You may have received two cash payments in this transaction. One is for the cash portion of the merger; the other is for the sale of fractional shares of Berkshire Hathaway or cash-in-lieu. The larger payment is the return of capital. According to information received from BNI shareholders who elected to receive no cash for their BNI shares, this payment should be approximately $7.75 per BNI share.
- The second transaction will be a normal merger entry. If you are not familiar with merger entries you can go to http://www.iclub.com/support/kb/default.asp?page=normal_merger for help.
For those receiving only cash:
Enter a sale of all your BNI shares on 2/12/2010, for the cash received.
For those receiving cash plus BRK shares:
The return of capital entry - Go to Transactions > Dividend or Distribution in CA3 or to Accounting > Cash Dividend in the online accounting program.
Here is the information you need to enter for this transaction:
- Date : 2/11/2010
- Amount : See your broker statement. The amount should be approximately 7.75 x (# of BNI shares owned) For example, if you owned 100 shares of BNI the amount should be about 775.
- Ex-Dividend date: leave blank
- Type: Return of capital
- Select Security: Burlington Northern (BNI)
The merger transaction - For information on how to enter a merger, please see our web site at:
http://www.iclub.com/support/kb/default.asp?page=normal_merger
Here is the information you need to enter for this transaction:
- Date : 2/12/2010
- Old Security / Merging company : Burlington Northern (BNI)
- Cash Received: Enter the cash-in-lieu from your broker statement
- New Security: Berkshire Hathaway class B (BRKB)
- Shares received : Whole shares from broker statement + fractional shares. If you did not receive information on the amount of the fractional share you can calculate it from the cash-in-lieu payment. Fractional share = cash-in-lieu divided by 76.90*. For example, if you received 30 whole shares plus 33.97 cash-in-lieu, your fractional shares would be 33.97 / 76.90 = .4417. You would then enter 30.4417. Price per share: 76.90 (Closing price of BRKB on 2/12/2010)
- The closing price of BRKB on 2/12/2010 was 76.90.
* This calculation will get you close enough to make the transaction entry. Fractional shares are aggregated by brokers and sold so the actual selling price will vary.
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