Stock Mergers

Mergers

There are four basic types of stock

mergers, classified by consideration

received:

1. All common stock of the buyer
2. Stock and cash combined,

called "cash to boot"
3. All cash
4. Multiple or alternate securities,

sometimes with cash to boot

Investors are often confused about
which type of merger they have
because they can receive cash payments
in all four 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.

Stock Mergers. 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

Cash to Boot Mergers. 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. (See the multi merger calculator below for cases where two or more securities are received.)

Cash to Boot Calculator

Cash Mergers. 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

Multiple Security Mergers. Less common are mergers where multiple securities are exchanged or the buyer pays with an alternate security other than its own common stock. Cash to boot may or may not be paid in these types of mergers. If it is a normal Section 368 reorganization, the cost basis of the original stock is allocated to the new securities received in proportion to the relative market values on the first day of separate trading. Most investors have a hard time determining cost basis for the multiple securities involved. CostBasis.com to the rescue! Click on the image for the "Multi Merger Calculator" for help with multi mergers which are in our database.

Multi Merger Calculator

Information provided is intended solely for cash-basis U.S. citizen individual taxpayers and is believed to be accurate for most cases but is not guaranteed. Always consult your personal tax advisor about your own situation. Suggestions are most welcome. Please email costbasis@gmail.com with your comments. If this website has been helpful to you, please consider making a donation to support our efforts.

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