Company sold to another

[Lee]

Can you help me enter these correctly please?
1. One company was sold to another - I had 2000 shares and received a small cheque and 245 shares in the new company. Would the cheque be classed as a sale in the old company? I'm not sure about the 245 shares, do I just create the new company and add them - the program won't allow me to enter them as a $0 value.
2. Another company has a consolidation of the share capital on a basis of 1 new share for every 6 shares held. So the number of shares has decreased without any change in value.
3. Lastly another company paid a cheque for the amount of shares held when it sold, I'm assuming this would be entered as a sale?

[Mark]

Hi Lee,

1) You most likely received the cash for a sale of a partial share. Find out from your broker the exact details of this transaction. If it was a sale of a partial share you record this with a split transaction, and a sell transaction for the partial share. For example, maybe the split ratio is 245.5 shares for 2000, and then you would have a sell of 0.5 shares for the amount of cash you received. Also, change the investment's name/symbol under "Investment Properties...".

2) Record a split with a ratio of 1 for 6.

3) Correct, this sounds like just a sell of your shares.

[Lee]

Thank you Mark for your reply.

1. From the information I have, 'A' company shares registered in my name were transferred to 'B' company. 'A' shareholders elected to receive the maximum share consideration. Accordingly we received a cheque from 'A' company for $156 for 2000 shares held on record date and 245 shares were issued in 'B' company. I will await your reply before I go ahead.

2. I have recorded the split with a ratio of 1 to 6 - this is now showing a -53% gain on this investment

[Mark]

Hi Lee,

1) What is the $156 for? I suspect there is some more detail behind this. What are the specific companies? Often you can search the internet and it will show the details of the corporate action.

2) Check your closing prices relative to the date of the split transaction. On the same date that you have a 1 for 6 split the price should go up by approximately 6X.

[Lee]

Hi Mark,
It just says total cash consideration paid for the $156. The companies are Lihir Gold and Newcrest. It was back in September 2010 - my husband has been using your program since about 1999 but he hasn't input anything for five years so I've updated the program and taken over

I will check about the split transaction, it was St Barbara.

[Lee]

Mark,

I have checked the split transaction for the 1 to 6 ratio. When I have recorded this it has adjusted the initial purchase to 1250 instead of 7500 (although keeping the same purchase amount) and also everything since shows 1250, not just from the split record date of 18/11/2010. Is this correct?

[Mark]

Hi Mark,
It just says total cash consideration paid for the $156. The companies are Lihir Gold and Newcrest. It was back in September 2010 - my husband has been using your program since about 1999 but he hasn't input anything for five years so I've updated the program and taken over

I will check about the split transaction, it was St Barbara.

Hi Lee,

I did a quick search, and found this:

"LGL shareholders will receive one Newcrest share for every 8.43 LGL shares they own, plus A$0.225 cash per share, less any interim dividend declared or paid by LGL for the half year ending 30 June 2010."

That doesn't seem exactly consistent with getting 245 shares for 2000 LGL that you owned. The 0.225 cash per share may constitute part or all of the $156 you received. It sounds like you may just need to record a 245 for 2000 split, and a cash dividend of $156, unless you found out that the $156 included a sell of some partial shares.

[Mark]

Mark,

I have checked the split transaction for the 1 to 6 ratio. When I have recorded this it has adjusted the initial purchase to 1250 instead of 7500 (although keeping the same purchase amount) and also everything since shows 1250, not just from the split record date of 18/11/2010. Is this correct?

Hi Lee,

Yes, when you record a 1 for 6 split, this makes sense. You can also toggle the option "View / Split Adjusted" if you want to see the shares split adjusted or not. Either way, this doesn't change your return, it is just how you want the shares displayed. Look at the date you have the 1 for 6 split recorded for. Next, look in the Data Register under the data type of "Prices", and see if the price is consistent with this. The actual closing price should drop by about 6X on the date of this reverse split. Where are you viewing the -53% number? What is the market value of your investment in Fund Manager, and how much did you pay for it? Does the -53% number make sense? If not, what is wrong? Is the current market value correct? Is your purchase amount correct?

[Lee]

Hi Mark,

I think that rate of 8.43 LGL shares they own, plus A$0.225 cash per share was for a Mixed Consideration. We elected for the Maximum Share Consideration which they said "was scaled back on a pro rata basis". Very confusing!

[Mark]

Hi Lee,

Okay. The general procedure is that you record a split for whatever the ratio of new to old shares was, and if you end up with a partial share that is redeemed for cash, record that as a sell transaction. If you also received cash as in this case, record that cash as a distribution.

[Lee]

Great, thanks Mark!