Q&A for How to Adjust Cost Basis After a Merger

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Please explain the 1.049 shares of B for each share of A. That option was for receipt of shares only. The actual ratio appears to be 98.7049 divided by 200= .49352

Community Answer

1.049 shares of B has the same value as 1 share of A. You must use this ratio to convert 98.7049 shares of B into the equivalent number of shares of A. 200 shares of A is not equal to only 98.7049 shares of B, due to the cash portion received.

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How do I determine the value of the shares of a publicly traded stock I received in a merger?

Community Answer

The initial cost basis would be the stock's price at the time you obtained the shares. So if you had ten shares at $10 per share, your cost basis is $100. If you sell the 10 shares at $11 per share, your capital gain is $10. The average cost basis is the average of the cost of the shares. Most brokerage firms will figure the cost basis for you so you don't have to dig up the details. When selling stock shares, you also typically have the option of "First In, First Out" (FIFO) or Specific Identification "SpecID," the latter allows you to choose which shares you want to sell (for some, selling the shares that rose the least will incur the least tax consequence).

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I have the cost basis of a stock that was merged with another stock. My stock was absorbed. I now have stock in the new stock. If I sell the new stock, do I use my original cost basis?

Community Answer

You would have to use the post merger ACB (adjusted cost base) of the number of shares you now in the new company. You can ask your broker to provide you with your new adjusted cost per share.

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PraxAir, a US-based company, recently merged with Linde, a German-based company. The new merged company will be based in Ireland. How does that affect the capital gains for the company?

Community Answer

The merger failed to meet all the criteria to make it tax neutral to the investors, due to if I remember correctly, too large a percentage of foreign ownership. So, you must realize the gain (and pay taxes) on all your Praxair shares as if you sold them. Then the Linde basis is the value of the Linde stock when it was issued. In my case, the Praxair stock was originally from a purchase of Union Carbide, pre DOW aquisition, pre Praxair spinoff, pre a couple splits, so the gain was a very large percentage of the Praxair price, and subsequent large tax bill. I found a document on the Linde or Praxair website explaining why.

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