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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.
On 1st Jan 2009 you purchase 1,000 shares in Company ABC @ 100 pence per share.
Cost base for original holding of ABC plc = 1000 x 100p = £1,000
On 1st Jun 2009 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 = 66.67p
You would input this share settlement in your timetotrade share portfolios as follows:
Firstly, we need to make sure the original share holding is listed in your timetotrade share portfolio. For the purposes of illustration only, we will assume that no commission or stamp duty was paid.
You can see your original share purchase in your portfolio in the screen shot below:
To add the Takeover / Merger, click on the "share reorganisation" button as illustrated above. This will take you through to the Share Reorganisation page.
Select the date that the Takeover / Merger occurs. In this example, we will say that the date is 1 June 2009.
Next, from the drop down menu select the shareholding that is subject to the Takeover / Merger. In this example, select "ABC"
Now we need to specify the type of share reorganisation. In this instance select "Merger"
We're now nearly done. Next stage, complete the fields as shown below:
Symbol = input the ticker symbol for the company in which you have received the new shares, in this instance we have received new shares in XYZ plc, so input the symbol XYZ
Share Issue Ratio = input the ratio of new shares received for every old share owned. In this example we receive 1.5 new shares for every share in ABC plc, so input 1.5 : 1.
Shares Issued = input the number of new shares received, in this example we receive 1,500 shares in XYZ plc
When finished click the "submit" button. You will now see a summary of the details input.
Check the details are correct, and click on the blue text "click here to return to ledgers" to take you back to your share portfolio page.
Returning to your share portfolio page, you can see that the merger transaction has been added to your portfolio and you no longer own shares in ABC plc, instead these have been replaced with 1,500 shares in XYZ plc with a base cost of £1,000 as expected.
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