Recording Mergers and Acquisitions

Mergers and acquisitions are 2 similar mechanisms that companies can use to combine their operations.

  • Merger - 2 companies agree to combine their operations into a single company. Although mergers occur among “equals”, the name and stock of one of the merged companies are typically retained for the new combined company. The stock holders of the other company receive compensation for their shares, usually in the form of shares of the new company. For example, as a share holder of the other company, you might receive 1 share in the new company for every 3 shares in the old company you own.
  • Acquisition - Also known as a buyout. One company will purchase all of the shares of another company. The payment can be in the form of cash, or in shares of the purchasing company.

Record a Merger

Let’s assume that company AAAA is merging with company XYZ. The new company will trade under the XYZ ticker symbol and owners of shares in the AAAA company will receive 1 share in XYZ for every 2 shares of AAAA they owned - a merger ratio of 0.5.

The portfolio before the merger

To record this event in StockMarketEye, follow these steps:

  1. For your holdings in AAAA, create a “shares out” transaction. You can do this by clicking on the “Sell Stock” button in the toolbar, then in the new “Enter Sale Details” window, change the Type field to be “Shares Out”.

    The Price field should have the price of your original unit costs (i.e. cost basis per share). No commissions or fees are needed for this transaction.

    In general, the total value of this “Shares Out” transaction should be the same as your cost basis of the AAAA holding.

    Note that you should also set the “Cash balance” field to be “do not update”.

    Recording the Shares Out transaction.
  2. For the new holdings in XYZ, add a “shares in” transaction. You can do this by clicking on the “Buy Stock” button in the toolbar, then in the new “Enter Purchase Details” window, change the Type field to be “Shares In”.

    The Quantity field should have the number of shares in XYZ that you will receive. That is, your number of shares in AAAA times the merger ratio - in our example, this is 0.5 times the number of AAAA shares we owned.

    The Price field should have the price of your original unit costs, adjusted for the merger ratio. That is, your original cost basis per share of AAAA times the merger ratio. No commissions or fees are needed for this transaction.

    In general, the total value of this “Shares In” transaction should be the same as your costs basis for the original AAAA holdings.

    Note that you should also set the “Cash balance” field to be “do not update”.

    Recording the Shares In transaction.
  3. After applying these 2 transactions, you should only have holdings in your Prices view for XYZ. The cost basis of the XYZ shares should also correspond to the combined cost basis of all your XYZ shares.

    Note that we suggest you verify the numbers, including ending cost basis, with what is reported by your brokerage.

    The portfolio after the merger.

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