On 12/31/2009, Marvel Entertainment Inc (MVL) was merged into The Walt Disney Company (DIS). This merger is a cash plus stock reorganization, a type of transaction which has become more and more frequent in recent years.

 

Entries for this type of transaction are quite complicated. If you are using accountsync, the entries will be made for you. If not, you can make the entries using the the steps, below. If you wish the bivio staff to make these entries, let us know.For each share of MVL, you received 0.7452  shares of DIS common stock plus $30.00. The market value of DIS at the time of merger was $32.25, making the stock portion of the consideration $24.0327 [0.7452  x 32.25]. Add the cash received of $30.00 to this, and you get $54.0327 for total merger consideration.

 

The instructions below work if you have purchased MVL in one block and have not had any reinvested dividends or additional purchases of the stock.  If you have reinvested dividends or purchased additional blocks of stock, you'll need to calculate this for each and every block.  To make this easier, you can use Jim Thomas' excellent spreadsheet at http://home.comcast.net/~jimt075/BI/StockCashMerger.xls. Again, if you wish us to perform these entries, we will do so.

 

First, if you have made any entries for this transaction in the bivio accounting software, you should delete them.

 

The total merger consideration is $54.0327 per MVL share. Subtract your MVL basis from that total consideration to calculate your gain. That is your total gain on the transaction, not your reportable gain. The reportable gain is the lesser of the cash received or the total gain. IRS regulations state that reportable gain must be recognized, but losses are not recognized. If your reportable gain results in a loss, enter zero for the reportable gain in the calculations below.The type of gain is based on how long you held it - over one year is Long-Term, one year or less is Short-Term. You report it by going to Accounting|Investments|Income, and then selecting either long term or short term capital gain as the distribution type. Date that transaction 12/31/2009.
 
If your total gain is more than the cash received, you should skip the rest of this paragraph. Now, we must account for the balance of cash received in excess of that reportable gain. You will enter that excess as a return of capital against the MVL stock. Enter it by going to Transactions, Dividend or Distribution: type = Return of Capital. Date that transaction 12/31/2009 also.
 
Now, we are ready to record the merger.  Go to Accounting|Investments| Merger.  Fill in Ticker, Acquiring Ticker, and Transaction Date with MVL, DIS, and 12/31/2009. Calculate the total of DIS shares received by multiplying 0.7452 by the number of MVL shares held. Include the fractional portion of this calculation. Enter this number into the Shares box in bivio.

 

If you received cash in lieu of fractional shares, enter that amount in the cash received box. Select the appropriate account, enter any notes in the Remark, and click OK.
 
Finally, if the broker charged a reorganization fee, enter that on as a negative return of capital against DIS for the reorganization fee. To do this, go to Accounting|Investments|Income. Select DIS for the investment. Select Return of Capital as the distribution type. Be sure to enter it as a negative figure - that is with a minus sign.

 

Rip West
bivio Inc.