Merger/Exchange Wizard

The Merger/Exchange Wizard is designed to help you adjust cost basis after a stock merger.

A merger occurs when two or more companies combine into one while all parties involved mutually agree to the terms of the merger. This can result in the right to receive shares only or shares plus cas per share. A Cash Merger is a merger where an acquiring firm buys the target firm's stock with cash.

Since your custodian may already generate transactions for mergers, a logical question is, why should I bother using the Merger/Exchange Wizard for something that already exists? The Merger/Exchange Wizard is recommended for these reasons:

Note: According to tax law, a "merger" can have different tax implications depending upon whether the transaction qualifies under tax law as a redemption (taxable) or as a reorganization (tax-free). When a merger is considered taxable, then all the lots of the old security have to be sold for a total amount equal to the cash consideration plus stock consideration. The new security then has to be bought for a total cost equal to the stock consideration. For instructions on how to process a taxable merger, click here

. When a merger is considered tax free, if the cash/stock share ratio is not provided, then the cash consideration received should be treated as a dividend or capital gain.

Prior to running the merger wizard, you may need to delete transactions that have been imported through a custodian. These transactions are often flagged and located at the top of the Transactions blotter. You won’t need to use these transactions, since they will be re-created and accounted for by the selected wizard. Export the transactions pertaining to the corporate action to an Excel spreadsheet for reference later, and then delete those transactions. Note: If you already posted the transactions to your clients' accounts, export them to an Excel spreadsheet from the client's accounts, and then delete them from there.

The merger/exchange wizard can be launched from two areas of the system; either the Import Sources grid or the import blotter screen. To facilitate the process of reconciling and posting merger transactions, Morningstar recommends using the Corporate Action Wizard from the Corporate Actions Warehouse window from the import blotter screen as this will allow you to reconcile the data. The wizard can be used during your normal import process. Note: If the accounts were imported from Microsoft Excel, they cannot be reconciled, you can simply post the transactions to your account.

Original Security Screen

On this screen, you will enter the information for the original security, the date of the merger/exchange, and the merger type.

Based on your selection of Stock only, Cash only, or Stock and Cash in the Merger Type area of the Original Security screen, the New Security screens will have different options.

If you selected the Stock only option, click here for the options related to that selection.

In the New Security Name or Symbol/CUSIP field, click the magnifying glass icon. The Find Securities dialog opens.
Select the security and click OK. You are returned to the wizard and the New Price Per Share field is automatically populated based on information stored in Morningstar Office.
Although the price is automatically populated when the new security is selected, the New Price Per Share field can be manually altered.
In the Share Exchange Ratio field, enter the distribution ratio in decimal places. (Example: .50)
In the Are you receiving cash in lieu of fractional shares? field, click the Yes or No radio button. Click here for more information on Cash-in-Lieu transactions.
1. If you selected Yes, in the Cash in Lieu Price field, enter the amount of cash received. If no amount, or 0 is entered, sell transactions will be generated on the Cash in Lieu blotter with a red warning. To correct the transactions, refer to the Cash in Lieu transactions you exported prior to deleting them to retrieve the Net Amount. Morningstar recommends updating the Net Amount column rather than the Price column to avoid rounding issues. If the price is added and the calculated Net Amount value (Number of Shares x Price) results in a value with more than two digits after the decimal (18.756 instead of 18.76), this could result in incorrect values in the Cash account. After entering the net amount in both the Sell and Deposit fields, click Save to have the system complete the transaction.
2. If you selected No, the option changes to Fractional Shares and you must select how you want to handle the fractional shares. If Fractions is selected, the system retains the exact number of whole and fractional shares created through the spin-off. If Dropped is selected, only whole shares are retained and the fractional shares are ignored. If Rounded is selected, and the fractional share is .50 or greater, the system rounds up to the next whole share; if less than .50, the system rounds down to the closest whole share.
Click Next.

If you selected the Cash only option, click here for the options related to that selection.

In the Cash Price Per Share field, enter the amount of cash received.
Click Next.

If you selected the Stock and Cash option, click here for the options related to that selection.

In the New Security Name or Symbol/CUSIP field, click the magnifying glass icon. The Find Securities dialog opens.
Select the security and click OK. You are returned to the wizard and the Price Per Share field is populated.
Although the price is automatically populated when the new security is selected, the New Price Per Share field can be manually altered.
In the Stock/Cash Proration Factor field, select the Yes or No radio button.
1. If you select Yes, enter a decimal value (between 0 and 1) in the Share Ratio Eligible for Stock. Click in the Share Ratio Eligible for Cash field to auto-complete.
2. If you select No, click the Cash Consideration drop-down and select As Capital Gain or As Dividend.
In the Share Exchange Ratio field, enter the distribution ratio in decimal places. (Example: .50)
Enter the Cash Price Per Share. This is normally provided by the custodian or can be researched on the Internet.
In the Are you receiving cash in lieu of fractional shares? field, select the Yes or No radio button. Click here for more information on Cash-in-Lieu transactions.
1. If you selected Yes, in the Cash in Lieu Price field, enter the amount of cash received. If no amount, or 0 is entered, sell transactions will be generated on the Cash in Lieu blotter with a red warning. To correct the transactions, refer to the Cash in Lieu transactions you exported prior to deleting them to retrieve the Net Amount. Morningstar recommends updating the Net Amount column rather than the Price column to avoid rounding issues. If the price is added and the calculated Net Amount value (Number of Shares x Price) results in a value with more than two digits after the decimal (18.756 instead of 18.76), this could result in incorrect values in the Cash account. After entering the net amount in both the Sell and Deposit fields, click Save to have the system complete the transaction.
2. If you selected No, the option changes to Fractional Shares and you must select how you want to handle the fractional shares. If Fractions is selected, the system retains the exact number of whole and fractional shares created through the spin-off. If Dropped is selected, only whole shares are retained and the fractional shares are ignored. If Rounded is selected, and the fractional share is .50 or greater, the system rounds up to the next whole share; if less than .50, the system rounds down to the closest whole share.
Click Next.

Select Which Accounts Screen

On this screen, you will select the accounts to which the transactions should be generated.