Ford Recapitalization - All Stock Option - trez_talk - bivio Investment Clubs

Ford Recapitalization - All Stock Option

Rip West on

This is part of a continuing series on mergers, spin-offs, and stock splits. In early August of 2000, Ford Motor Company completed a recapitalization/merger plan. Under this plan, a shareholder could exchange stock for 1.748 shares of new Ford stock, or could receive 1 new share of Ford stock, plus $20 a share. A third option was to receive a combination of new Ford stock and cash. The first option [all stock] was a non-taxable reorganization. The other two options have tax ramifications. In this article, we will deal only with the all stock option. The taxable options will be discussed in later article(s).

Readers are urged to download a public file in Trez_talk for more information. This file can be found at http://www.bivio.com/trez_talk/files/stocks/f-recapitalization.rtf

Before making any entries for this stock for stock recapitalization, it is very important that you do two things:

Record the Visteon spin-off in accordance with the instructions found in our article about that transaction at http://www.bivio.com/trez_talk/mail-msg?t=3665000003

Check your broker's statement to see if any fractional shares that you owned before this recapitalization were sold. I know of at least one broker where this was done prior to receiving the new stock. If some of your old fractional shares were sold, you must record that sale. In bivio, go to Accounting|Investments and select Ford. Click on the Sold Icon. Enter the date the fractional shares were sold - probably around 8/2/00. Accept Broker as the account. Enter the fractional shares in the Shares box. Do not click on Lots; let the software select the blocks for the sales on the first-in, first-out (FIFO) basis. Click on OK, and your fractional shares sale has been recorded.

Now we can enter the stock for stock recapitalization. We will do this by treating the transaction as a stock split. In bivio, go to Accounting|Investments and select Ford. Click on the Stock Split Icon. Enter the date for the split, probably 8/8/00. For the split ratio, enter 1.748 to 1. Enter any cash received for fractional shares. Note that we have been talking about two sets of fractional shares - the first, which were owned before the recapitalization, and the second the ones you received in this 1.748 to 1 split. Accept Broker for the account, enter a comment, if you like, and click OK. You now have recorded the transaction in bivio.

NCA users can probably follow the above instructions to record the transaction in that program. I would caution you to enter the split and the sale of fractional shares as two separate transactions, since I have found some problems in trying to record them in one step.

These are difficult transactions - both to record and to explain. Please come back with questions on anything that is not clear. Remember, this article is specifically for the all stock option. If you received any part of that $20 per share, you should not use these instructions. The cash options will be taken up in a later article.

Rip West
Ridgway, CO
trez_talk@bivio.com

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