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Merger/Exchange Wizard

Using the Mergers and Exchange Wizard Manual

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.

  1. To access this feature from the main menu, click Import from the top toolbar.

  2. From either the Import Sources grid, or the import blotter screen, click Corporate Action Warehouse from the top menu.

    1. Morningstar Office stores information for many spin-offs and mergers in the Corporate Action Warehouse. If your merger is listed, you can use the information provided by Morningstar to generate the transactions.

    2. Select the merger by placing a check in the box next to the Issuer Name, and then from the top menu, click Corporate Action Wizard. The wizard opens with known information about the merger pre-populated.

    3. Continue through the wizard to create the transactions.

  3. If your merger is not available in Office, or if you choose to manually enter the information for the merger, select Corporate Action Wizard from the top menu and the Select a wizard to run dialog opens.

  4. Select Merger/Exchange Wizard and click OK. The fields within the wizard are described below.

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.

  1. In the Original Security Name or Symbol/CUSIP field, click the magnifying glass icon. The Find Securities dialog opens.

  2. Select the security and click OK. You are returned to the Merger/Exchange wizard.

  3. Click the Effective Date drop-down. A calendar appears. Select the date the merger or exchange takes effect.

  4. In the Merger Type area, click the Security only, Cash only, or Security and Cash radio button.

  5. Click Next.

New Security Screen

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.

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

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

Select Which Accounts Screen

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

  1. Click the Import Source drop-down and select the custodian from which you import.

  2. The All accounts radio button is selected by default.

  3. If you do not want to select all accounts, check the Select accounts radio button and click the magnifying glass icon. The Find Accounts dialog opens.

  4. Select the account(s) and click OK.

  5. Click Next to generate the transactions. You are taken to the Corporate Actions Blotter where you can review the transactions.

See Also

Cash-in-Lieu Transactions

FAQs for Merger Transactions

How to Create a Microsoft Excel Client/Account Mapping for Manual Accounts