Re: Partial buyout question

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In Reply to: Partial buyout question posted by James Howard on March 19, 2005 at 11:32:39:

: I have searched the forum for a similar example but can not find one and therefore seeking advice as how to handle the following.

: I currently own Banknorth (BNK), a regional bank. On March 1, Toronto-Dominion Bank (TD) purchased a 51% interest in BNK. The deal of the merger is that for every BNK share one will receive the following: $12.54 in cash, 0.2351 shares of TD with fractional shares paid at $40.522 per share, and 0.49 shares of BNK with fractional shares paid at $31.198 per share.

: I would appreciate any help one can give me regarding how to handle this in FM.

: Thanks.
: jfh

Hi JFH,

There's a lot of activity happening there. Just record it as it is happening. Here's a suggestion:

1) Record a distribution in BNK of $12.54/share
2) Create a new investment for TD and record a purchase for (0.2351 * # of BNK shares you owned before this event) shares.
3) Record a sell in TD for the fractional # of shares in step #2. Record this sell at $40.522/share. You should end up with an integer number of shares in TD.
4) Record a "Return of Capital" distribution in BNK for the value of the purchase in step #2.
5) Record a split in BNK of 0.49 for 1.
6) Record a sell in BNK for any fractional shares still owned at a price of $31.198. You should end up with an integer number of shares in BNK.

You could probably record it with some other variations, but the above is best I believe because it maintains your cost basis history in BNK.

As an aside: "Return of Capital" distributions (and "Account Fee" too) are unique distribution types, as they affect your cost basis. When you have a return of capital, this reduces your cost basis for capital gain calculations. Account Fee type of distributions are negative, and they will increase your cost basis.

Thanks,
Mark
--
Mark Beiley
Fund Manager, portfolio management software for Windows 95/98/ME/NT/00/XP/2003

Replies:

• Re: Partial buyout question James Howard 12:33:45 03/19/05 (0)