Home → Investments →

Accounting for Takeovers

• Edit

Bob

31 Mar, 2018 12:26 PM

Is there an easy to understand method for accounting for Takeovers?
eg Amec Foster Wheeler (AMEC) taken over by John Wood Group (WG.) on October 9th 2017. AMEC holders receiving 0.75 WG. shares per AMEC share held. No cash involved.
How does one account for this so that correct Capital Gain is showed when WG. shares get sold?

BTW I have seen the Stock Spinoff article, but do not really understand it. An actual example might help to make sense of it?

1. 1 Posted by dwg on 01 Apr, 2018 10:01 PM

   

   I'm a fellow customer.

   To be blunt Moneydance does not have to tools to do this gracefully or even totally correctly at times.

   The normal approach that support recommend is to do a sell of each lot at the original purchase price after allowing for fees.

   Then do a purchase of each lot based on the total amount of each of the original purchases but with the number of shares in the new company adjusted by the ratio used in the takeover.

   It's ugly, messy and loses any ability to look at long term returns. Capital gains should be correct but the time over which they occurred will be wrong. As the sales is being done at cost price no capital gain will be shown, but as you are buying using the original cost price you are building the old capital gain into the pruchase pricing of the new security.

   If you do not already own any John Wood shares then you could potentially take another path.

   This involves performing a stock split to get to the correct number of John Wood Shares you own, then renaming the security and changing the ticker symbol. I would also tend to make a non-value entry into the register to note the takeover. This should preserve all the history and make for correct capital gains calculations.

   There is just no good way of doing this in Moneydance or in many personal financial management programs. This is an area where Moneydance trails the leaders by a fair way in my opinion.

   A spinoff is actually a quite different situation in that part of a company is being floated off into a separate entity but the original company is continuing on. Often this is achieved by a capital return being used to fund the new shares.

   • Edit

2. 2 Posted by BobCrock on 02 Apr, 2018 02:03 PM

   

   Dwg,

    

   Thanks for that. I had wondered about taking the stock split route but had been nervous that this might cause other things to go wrong. You have reassured me and I can report “Job done”.

    

   Thanks again

   Bob

   • Edit

3. System closed this discussion on 02 Jul, 2018 02:10 PM.