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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
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"
Next stage, complete the fields as shown below:
First of all we will input the details for the ordinary shares received in XYZ plc
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
Fractional Shares = nil in this example. If you received any fractional shares change the field to "yes".
Issue Price = input the market value of the new shares on the day of the effective date of the merger, in this instance the market value of the XYZ plc ordinary shares was 175p, which is input in the format pounds GBP, euro or dollar - in this case input as 1.75
We now need to add the details for the XYZ plc B-shares which we also received as part of the proceeds from the merger, so click "add another" next.
Symbol = input the ticker symbol for the second class of shares received as a result of the merger. In this instance we also received XYZ Plc B shares. We will enter these as XYZ_B.
Share Issue Ratio = input the ratio of new shares received for every old share owned. In this example we receive 1 new XYZ plc B-share for every share in ABC plc, so input ratio 1 : 1.
Shares Issued = input the number of XYZ-B shares received, in this example we receive 1,000 XYZ plc B-shares
Fractional Shares = nil in this example. If you received any fractional shares change the field to "yes".
Issue Price = input the market value of the new XYZ plc B-shares on the day of the effective date of the merger, in this instance the market value of the XYZ plc B-shares was 25p, which is input in the format pounds GBP, euro or dollar - in this case input as 0.25
We have now input all types of share received: ordinary shares and B-shares. Click the "submit" button. (If you had received further shares or cash as a result of the merger, you would click the "add another" button again.)
You will now see a summary of the details input.
Check the details are correct, and click on the club "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 ordinary shares in XYZ plc and 1,000 XYZ plc B-shares. The total combined base cost for the new shares is £1,000 as expected, split in proportion to their market values on the day of the merger with £913.04 base cost allocated to the ordinary XYZ plc share holding and £86.96 allocated to the B-share holding, as expected.
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