timetotrade

This is the TimeToTrade help wiki. Use the TimeToTrade Trigger Trading Technology™ to execute your trades when Price, Candle Stick, Trend Line, Volume and Technical Analysis chart conditions are met - no coding required. Trade directly in the world’s global markets. Backtest your Trading Strategies. Calculate your UK HMRC Capital Gains Tax liabilities. Manage your Investment Club.


Take-overs & Mergers

One company may wish to take over or merge with another to:

  • Enhance its operations or eliminate competition
  • Acquire an on-going business rather than start from scratch, because it is cheaper
  • Acquire specific assets or brand names owned by the target company
  • Acquire the management of the target company


Acceptance of a bid may be recommended by the target company's management where the price is fair and/or they feel it would be to the advantage of shareholders. If the target company's management feel the bid is inappropriate or the price too low, they can take the following action:

  • Issue a profit and dividend forecast to persuade shareholders that the company's prospects are so good that either they should reject the bid outright or hold out for a higher price.
  • Issue an analysis of the predator company showing its weakness
  • Persuade a more acceptable third party (a 'White Knight') to stage a counter-bid, and then recommend its acceptance.
  • Bid for another company which the predator company does not want or cannot afford. This is sometimes called a 'Poison Pill'.


When one company takes-over or merges with another company this is typically achieved via a cash or share settlement, or a combination of both. The Capital Gains Tax implications are different depending on the settlment type.


Let us look at some examples:

Cash Settlement
If you are a share holder in a company that is being acquired for a cash settlment, then on take-over your share holding will be sold. After the cash settlement, you will no-longer own shares in the company that was acquired, or the company that acquired your shares. The sale is treated as a normal disposal for Capital Gains Tax purposes.

A shareholder buys 1,000 shares in Company ABC plc @ 100 pence per share.
Cost base for original holding = 1000 x 100p = £1,000

In our example, let us say company XYZ plc takes over ABC plc and in return you receive 200p for each share you hold in ABC plc, your gain would be calculated as:

Acquisition cost = 1000 shares @ 100p = £1,000
Disposal Proceeds = 1000 shares @ 200p = £2,000
Gain = Disposal proceeds - acquisition cost
Gain = £2000 - £1000
Gain = £1,000

To manage a cash settlement in your timetotrade's portfolio you should input the cash settlement in exactly the same way as you would a usual share sale, for more information click here:

Example - Cash Settlement >>

Share Settlement
When two companies merge, shareholders in the company that has been acquired or merged into another, receive new shares in place of their existing holding. In this instance, a merger is not treated as a disposal for Capital Gains Tax purposes but instead the shares in the new company are deemed to have been acquired at the same time and for the same price as the original share holding.

A shareholder buys 1,000 shares in Company ABC @ 100 pence per share.
Cost base for original holding = 1000 x 100p = £1,000
Company ABC plc is merged with Company XYZ plc. Under the terms of the merger you receive 1.5 ordinary shares in Company XYZ plc for every share held in Company ABC plc.
After the merger you will own:
1000 x 1.5 = 1,500 shares in XYZ plc.
Cost base for new holding = £1,000
Average price per share = £1,000/1500 = 67p

To see how you would manage a share settlement using timetotrade's Capital Gains Tax calculator and Share Reorganisation wizard, click here:

Example: Share Settlement >>

Merger Involving Different Classes of Shares
If the acquiring company issues different classes of share it is necessary to apportion the base cost of the new holding between its different components by reference to the market value of the different shares at the date the merger is deemed to have been effected, the "effective date".

The "effective date" differs depending on ether or not any of the shares are quoted on a Stock Exchange within three months or the organisation taking effect.

Quoted shares - you value the different classes of share on the first day when values are quoted for the shares in the reorganisation

Unquoted shares - you wait until you dispose of the shares before splitting the cost. The values you use in the forumla are the values of the shares at the time of disposal.

Using the same example, a shareholder buys 1,000 shares in Company ABC @ 100 pence per share.
Cost base for original holding = 1000 x 100p = £1,000

Company ABC plc is merged with Company XYZ plc. Under the terms of the merger for every share you hold in Company ABC plc you receive 1.5 ordinary shares in Company XYZ plc and 1 XYZ plc B-Share. The market values of each of the shares on the day of the merger is as follows:

XYZ plc ordinary share = 175p
XYZ plc B-Share = 25p

After the merger, for every share held in Company ABC plc, you will own:

1000 x 1.5 = 1,500 ordinary shares in XYZ plc, and
1000 x 1 = 1,000 B-shares in XYZ plc

The combined cost base of the XYZ plc Ordinary shares and the XYZ plc B-Shares is deemed to be the same as the cost base for the original ABC plc holding = £1,000 - which is split between the XYZ plc ordinary shares and the XYZ B-shares in the following proportions:


Proportion attributable to XYZ plc ordinary shares =
market value XYZ Ordinary Shares / (market value XYZ ordrinary shares + market value XYZ B-shares)
XYZ plc ordinary shares = (1,500 x 175p) / [(1,500 x 175p) + (1,000 x 25p)
XYZ plc ordinary shares = £2625/(£2625 + £250)
XYZ plc ordinary shares = 0.913043

Base cost of XYZ plc ordinary shares = 0.913043 x base cost of original ABC plc shares
Base cost of XYZ plc ordinary shares = 0.913043 x £1,000
Base cost of XYZ plc ordinary shares = £913.04


Proportion attributable to XYZ plc B-shares =
market value XYZ B-Shares / (market value XYZ ordrinary shares + market value XYZ B-shares)
XYZ plc B-shares = (1,000 x 25p) / [(1,500 x 175p) + (1,000 x 25p)
XYZ plc B-shares = £250/(£2625 + £250)
XYZ plc B-shares = 0.086957

Base cost of XYZ plc B-shares = 0.086957 x base cost of original ABC plc shares
Base cost of XYZ plc B-shares = 0.086957 x £1,000
Base cost of XYZ plc B-shares = £86.96


To see how you would manage a settlement involving different classes of share using timetotrade's Capital Gains Tax calculator and Share Reorganisation wizard, click here Example: Settlement Involving Different Classes of Share>>


Share & Cash Settlement
The Capital Gains Tax treatment varies depending on whether the cash settlment received falls under the classification of "large cash" or "small cash".

The cash settlment would be classified as "small" if either it is:

  • less than £3,000, or
  • it is less than 5% of the market value of your shares in the original company immediately before the merger or take over


If the cash settlement is classified as "small" then the base cost of the original share holding is reduced by the cash amount and the tax liability is deferred until the shares are disposed of.

On the other hand, if the cash is classified as "large cash", then there is deemed to have been a share disposal and as such there is an immediate tax liability. In such an instance, to calculate your tax liability it is necessary to allocate a cost to the cash settlement. The cost is apportioned to the cash received in proportion to: the value of the cash divided by the sum of the value of the cash plus the value of the associated shares, on the effective date of the merger,
ie the cost is allocated in proportion to = (value of the cash settlement) / (value of the cash settlement + market value of the shares received)


Share & Cash Settlement - "Small Cash"
Let us consider the tax implications when the cash received is classified as "small".

Using the same example, a shareholder buys 1,000 shares in Company ABC @ 100 pence per share.
Cost base for original holding = 1000 x 100p = £1,000


Company ABC plc is merged with Company XYZ plc. Under the terms of the merger for every share you hold in Company ABC plc you receive 1.5 ordinary shares in Company XYZ plc and 50p in cash. And let us say that the price of ABC plc shares on the day before the merger is 200p.

Firstly we need to determine if the cash settlement is "small" or "large".

Total cash received = 50p x 1,000 shares
Total cash received = £500

This is less than £3,000 and so the cash settlement can be classed as "small".

So to calculate the base cost of the new XYZ plc shares:

Cost base for original ABC plc holding = £1,000
Cost base for new XYZ plc holding = original ABC plc cost base less cash settlement
Cost base for new XYZ plc holding = £1,000 - £500
Cost base for new XYZ plc holding = £500

After the merger you own 1000 x 1.5 shares in XYZ plc:

Average cost per XYZ plc share = £500 / 1,500 shares
Average cost per XYZ plc share = 33.33p


To see how you would manage a settlement involving both shares and cash settlement using timetotrade's Capital Gains Tax calculator and Share Reorganisation wizard, click here Example: Share & Small Cash Settlement>>

Share & Cash Settlement - "Large Cash"
Let us consider the tax implications when the cash received is classified as "large".

Amending our example, a shareholder now owns 10,000 shares in Company ABC purchased @ 100 pence per share.
Cost base for original holding of ABC plc shares = 10,000 x 100p = £10,000

Company ABC plc is merged with Company XYZ plc. Under the terms of the merger for every share you hold in Company ABC plc you receive 1.5 ordinary shares in Company XYZ plc and 50p in cash.

The price of ABC plc shares on the day before the merger is 200p
The price of XYZ plc ordinary share on the day of the merger = 175p

Market value of ABC plc share holding the day before the merger = 10,000 x 200p = £20,000

Firstly we need to determine if the cash settlement is "small" or "large".

Total cash received = 50p x 10,000 shares
Total cash received = £5,000

The cash settlement is greater than £3,000 and represents more than 5% of the market value of your ABC plc holding immediately before the merger:
£5000/(£20,000) = 25%

In this instance therefore the cash settlement is classed as "large" and so there will be a gain or loss to declare on the cash received. To work out this gain or loss you need apportion the original cost of the ABC plc shares between the cash received and the shares received We initially paid £10,000 for 10,000 shares in ABC plc. And on merger received:

Cash settlement = £5,000
Number of shares in XYZ plc = 1.5 x 10,000 = 15,000 shares
Market value of XYZ plc share holding on day of merger = 15,000 x 175p = £26,250

The cost apportioned to the cash settlement is calculated as:

cash settlement cost base = Original cost base ABC plc x [(value of cash received)/(value of cash received + market value of XYZ plc received)]
cash settlement cost base = Original cost base ABC plc x [£5,000/(£5,000 + £26,250)]
cash settlement cost base = £10,000 x [0.16]
cash settlement cost base = £1,600

As far as HMRC are concerned you have made a gain from the cash settlement, this is calculated as:
Capital Gain = Cash settlement received - cash settlement cost base
Capital Gain = £5,000 - £1,600
Capital Gain = £3,400

You also own the 15,000 new shares in XYZ plc. The cost apportioned to these new shares is calculated as:
XYZ plc cost base = Original cost base ABC plc x [(market value of value of XYZ plc shares received)/(value of cash received + market value of XYZ plc shares received)]
cash settlement cost base = Original cost base ABC plc x [£26,250/(£5,000 + £26,250)]
XYZ plc cost base = £10,000 x [0.84]
XYZ plc cost base = £8,400

This is the cost base you will go on to use when calculating your future gains or losses on disposal of your XYZ plc share holding.

And the average cost of each share in your XYZ plc holding:
Average cost per share = £26,250 / 15,000 shares
Average cost per share = 175p


To see how you would manage a settlement involving both shares and cash settlement using timetotrade's Capital Gains Tax calculator and Share Reorganisation wizard, click here Example: Share & Small Cash Settlement>>


It has never been easier to execute your trading strategy. Our Trigger Trading Technology ® means you can now automatically execute your trades directly in the world’s global markets.


You need never miss a trading opportunity again!


Do you want to:

  • buy when your technical analysis chart conditions are met? Really buy, not just get an email or sms alert?
  • or sell when a support trend line is broken?
  • or back-test your strategy going back as far as 30 years?


TimeToTrade's Trigger Trading Technology™ is truly game changing. It gives you a trading advantage. The power to take your trading to a new level.


Open a FREE TimeToTrade account today to:


  • Trade UK, US and European Shares - apply now
  • Execute trades when your Price, Candlestick, Trend Line, Volume and Technical Analysis chart conditions are met using the Trigger Trading Technology® - learn more - help video
  • Email and SMS Trigger Trading™ Alerts - learn more
  • Trade Off The Chart - learn more
  • Back Test Trading Strategies with up to 30 years of historical data - learn more
  • Create Simulated Trading Accounts to test your Trigger Trading™ Strategies - learn more
  • Real time Forex, UK, European and US stock market data - learn more
  • 170+ Technical Analysis and Candlestick Pattern Indicators - learn more
  • All the tools you need to set up and run a successful investment club - learn more
  • Manage your Portfolio and calculate UK HMRC Capital Gains liabilities and SA 108 CGT Tax Returns - learn more
  • Create Trading Competitions for you and your friends - learn more
  • Apply for a trading account today to get the Live Account Features - apply now


Apply now to try our superb platform and get your trading advantage.



The information and data provided is for educational and informational purposes only. Interpretation and use of the information and data provided is at the user's own risk. All information and data on this website is obtained from sources believed to be accurate and reliable. However, errors or omissions are possible due to human and/or mechanical error. All information and data is provided "as is" without warranty of any kind. We make no representations as to the accuracy, completeness, or timeliness of the information and data on this site and we reserve the right, in its sole discretion and without any obligation, to change, make improvements to, or correct any errors or omissions in any portion of the services at any times. Past performance is not a guarantee of future results. Trading carries a high level of risk to your capital and can result in losses that exceed your deposits. It may not be suitable for everyone so please ensure you fully understand the risks involved.


All services are provided by Mercor Index Ltd. TimeToTrade is a trading name of Mercor Index Ltd (a company registered in England and Wales under number 9479466). Our Registered address is 1st Floor, Aldermary House, 10-15 Queen Street, London, EC4N 1TX. Mercor Index Ltd is authorised and regulated by the Financial Conduct Authority number 679941.


The trading services offered by Mercor Index Ltd are not available to residents of the United States and are not intended for the use of any person in any country where such services would be contrary to local laws or regulations. Subscriptions to TimeToTrade products are available if you are not eligible for trading services.

Retrieved from "?title=Take-overs_%26_Mergers&oldid=30971"