1. All stock 2. Stock and cash combined, called "cash to boot" 3. All cash
Investors are often confused about which type of merger they have because they can receive cash payments in all three situations.
The easy way to tell the difference between "all stock" and "cash to boot" mergers is by the amount of cash received, as explained below.
In an "all stock" merger, the exchange ratio can result in a fraction of a share being owed to the owner of stock in the acquired company. Rather than issue a portion of a share, the investor is paid "cash in lieu" of a fractional share. These payments are always small and less than the market value of one share. If you see a cash payment of $100 or less, it is most likely a cash in lieu payment (often denoted as "CIL" on brokerage firm account statements.) For these merger types, you can use the stock merger calculator by clicking on the image to the right. The data for recent all-stock merger transactions is already provided for you.
Stock Merger Calculator
In a "stock and cash" merger, each share sold receives a cash payment called "cash to boot." Because it involves every share and not just a fraction of a share, the amount of cash is much larger. If you receive a cash payment of more than $100 along with your new stock, you are most likely dealing with a cash and stock merger. You might even receive TWO cash payments for the same merger--one payment for the cash to boot paid for every share and one for the cash in lieu of fractional share on the stock exchange. For "stock and cash" mergers, you can use the "cash to boot" calculator by clicking on the image to the right. It has values pre-filled for many recent cash and stock mergers.
Cash to Boot Calculator
Check back for upcoming "cash to boot" deals that have not closed yet, such as Wyeth/Pfizer and Schering Plough/Merck. The data values will be added to the calculator after the transaction is completed. The market value of the new stock on the actual closing date is required in order to compute the gain.
The third type of merger is an "all cash" merger. No new stock is received at all. This type of merger is very straight-forward. You account for it just like a regular sale. No special calculations are needed. Just deduct your cost basis from the sales proceeds to determine your gain or loss.
You can use our "cash merger calculator" by clicking on the image to the right. Using our free database of recent major cash merger transactions, you can audit the sales proceeds you received from your broker and verify that the amount you received agrees with the terms of the merger.
Cash Merger Calculator
If you know of other cash merger transactions, please e-mail the details to us so that we can include it in our free database for the benefit of all users.
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Information provided is intended solely for U.S. individual cash-basis taxpayers and is believed to be accurate for most cases. Always consult your personal tax advisor about your own situation. Suggestions are most welcome. Please e-mail webmaster @ costbasis.com or write to us at P O Box 11022, Chicago IL 60611 with your comments.