[GNC] How to enter a corporate acquision?

[John Ralls]

> On Aug 19, 2019, at 4:48 PM, Art Chimes <artsonline at gmail.com> wrote:
> 
> A few years ago I bought shares in a small bank ("LocalBank"). A
> couple of years later, it was bought by a big bank ("MegaBank"). My
> original shares in LocalBank were traded in for a smaller number of
> shares in MegaBank, plus a few dollars cash in lieu of.
> 
> The closest I found in the documentation is the Stock Split tool,
> which is supposed to also handle mergers but that latter function is
> scarcely documented.
> 
> (The documentation shows you how to reduce the number of shares of the
> original holding but not how to establish the position in the new
> holding, at least as far as I understand. Entering a negative number
> of shares for a "merger" seems to result in a "reverse split," when
> the share price is increased as the number of share outstanding, or in
> a given investor's portfolio, is decreased proportionally. I'm using
> US terminology, and maybe in the Commonwealth or elsewhere the term
> "merger" is correct.
> https://www.gnucash.org/viewdoc.phtml?rev=3&lang=C&doc=help)
> 
> In any event, my use case is a corporate acquision more than a merger,
> though I think the principle would be the same.
> 
> I could kluge something together, but I'd rather not reinvent the
> wheel. And anyway, there must actually be a right way to handle this
> sort of acquisition? These days on Wall Street it can't be a very
> unusual occurrence.

The Stock Split assistant knows how only to add or take away shares. It can be made to work for a merger but doesn't really get you anything over doing it manually.

A merger of equals (the kind of merger that's non-taxable to the shareholder, you can only treat it this way if you get a letter telling you to) is really a transfer, and I've found it easiest to do by hand. First create the new security and a new account holding it, then simply create a transfer transaction exchanging
your 50,000 shares in LocalBank for the 67 shares of MegaBank. Book your $0.47 cash-in-lieu of a fraction-of-a-share of MegaBank as a capital gain in the usual way.

*But* if it was really a takeover then it's probably not a "merger of equals". You should have gotten a letter
telling you what was the sale price of LocalBank and your new basis in MegaBank. If not and LocalBank was publicly traded then you can use the closing prices on LocalBank's last day of trading for each, and you have to book a sale of LocalBank and a purchase of MegaBank, booking any capital gain or loss just as you would if you'd sold LocalBank and bought MegaBank in the market that day.

If LocalBank was closely held then you could use the exchange ratio between the shares and the closing price of MegaBank to estimate your sale price and your basis in MegaBank, but it would be safer to at least call the investor relations folks at MegaBank and ask for guidance.

Regards,
John Ralls