Re: merger / buyout

[ Q2 03 - Q4 05 Archive ] [ Current Message Board ] [ Archives ] [ Search ]

In Reply to: Re: merger / buyout posted by Ron Saad on July 29, 2005 at 15:34:52:

: : : Hello,

: : : How do I record a buyout / merger? For example Royal Dutch Shell - shares of SC replaced by ~0.862 of RDS-B with fractional shares sold on open market (yielded effective $62.15385389/share)?

: : : Thanks,
: : : Ron

: :
: : Hi Ron,

: : I'd suggest doing 3 things:

: : 1) Record a 0.862 for 1 split.
: : 2) Record a sell transaction for the number of shares sold.
: : 3) Change the Name/Symbol under "Investment Properties...".

: : You might also want to record a memo with either or both the split and sell transactions so you can remember the cause.

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

: Mark,

: Thanks for the quick response, but I'm not sure this is the "right" way.

: If I change the symbol don't I lose the history of the old investment? Wouldn't subsequent historical price downloads for older date ranges wipe out the correct performance history of SC?

: This is a merger - both entities existed prior to the corporate action. I need to record the replacement of SC with RDS/B with the correct cost basis without breaking the historical performance of SC.

: What I have attempted to do is:

: - record new investment in RDS/B with shares = .862 x old SC shares @ $62.xx / share
: - record sell of fractional RDS/B shares @ $62.xx / share

: But now I need to deal with the SC disposition - I tried a Return of Capital Distribution but it doesn't change the # of shares held.

: Seems like my approach doesn't work either.

: There should be a simple way to enter this corporate action.

: Any ideas?

: Ron

Hi Ron,

Just changing the symbol doesn't cause you to lose any historical data. You will still retain all your transaction cost history. It is true that if you retrieve historical prices for this investment for a date range prior to the merger it would update with the prices for the new symbol, so that is something to be careful to not do if you choose this method.

Your method also works fine, but you end up with 2 investments. I can see how this may be a "cleaner" way to end up, but you lose the historical transaction history in the new investment, and it gets replaced with just a single purchase on the merger date. Also, instead of recording the purchase at the current price, you may instead prefer to record it at your cost basis, so that you maintain a correct cost basis. To deal with your old investment, record a Return of Capital distribution for the same value as the purchase into your new investment. Then, you can also record a sell of your shares, but at a price of $0.

In summary, method #1:

1) Record a 0.862 for 1 split.
2) Record a sell transaction for the number of shares sold.
3) Change the Name/Symbol under "Investment Properties...".

Method #2:

1) Record a purchase into the new investment for your cost basis in the old investment
2) Record a sell in the new investment for any fractional shares sold
3) Record a Return of Capital Distribution in the old investment
4) Record a sell of all the shares in the old investment for $0

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

Replies: