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Demerger RRS feed

  • Question

  • In UK, Reckitt Benckiser will demerge on 2014-12-22 and a new company, Indivior, will list on the London Stock Exchange. Existing shareholders will receive 1 (one) Indivior share for every 1 (one) RB share that they own on that date. Obviously no one yet knows the closing price of the two companies next Monday afternoon.

    What is the best way of recording a demerger like this in MS Money?

    Teabag 

    Saturday, December 20, 2014 7:37 AM

All replies

  • I don't know what the UK tax rules are but in the US you allocate your current basis in the old company between the two resulting companies.  On 2014-12-22, you would use the closing prices to compute the current value of each holding (value = shares * closing price).  Let's call the values V1 for the old company and V2 for the new.  For each company you compute the percentage of what it contributes to the total (P1 = V1/[V1+v2] and P2 = V2/[V1+V2]).  You then use your previous basis B in the old company to compute your new basis in each (B1 = B * P1 and B2 = B*P2).

    To reflect this in money, I enter a return of capital transaction for the old company in the amount of B2 and a buy transaction for the new company with the number of shares and a total cost of B2 (ignoring whatever the actual share value is since that is not what you are "paying").  I usually add an entry in the memo field for both companies indicating it is a stock dividend.

    Saturday, December 20, 2014 8:11 AM
  • The first paragraph above is beautifully clear, thank you.  The relevant tax rules in UK are the same as yours in the US ~ so this really does seem to be the best way of doing things.

    As you say, within MS Money, and having "returned (an appropriate amount of) capital" from the old company, and transferred it directly to the cash portion of the new, it is necessary to "buy" shares in the new company - to consume those funds. Simply "adding" shares in the new company does not consume the capital returned.

    Like you I find memos useful in situations like this, but surely the final word in your earlier post should be "division" and not "dividend" ?

    Anyway, thanks again

    Teabag

      

    Saturday, December 20, 2014 7:13 PM
  • In the case you site, the new stock is the result of a demerger.  Thus the word division would seem reasonable in normal converwsation.

    However, the rules (at least here) do not distinguish why you receive the new stock.  Any time one company gives you x shares in a new company for each share you already own in the old company, that is called a stock dividend (as opposed to a cash dividend which is so many dollars/euros/pounds per share).

    Saturday, December 20, 2014 11:40 PM