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How to record the Kinder Morgan - El Paso merger in Quicken 2011

How do you record the Kinder Morgan merger with El Paso?  I received two different sets of shares from Kinder Morgan symbols KMI and KMLS
    According to this site: http://www.kindermorgan.com/investor/El_Paso_Merger_Consideration.cfm you likely received the two sets of shares (actual KMI shares and KMI Warrants = the right to buy shares in the future) and cash.  That site also states:  "Treasury Form 8937 is expected to be made available within 45 days of the May 25, 2012 closing. " which should address your basis.  

    I would wait for the 8937 info before trying to finalize this in Quicken.  

    You can read my comments and suggestions here:  https://qlc.intuit.com/post/show_full/aT6uRcFrWr4zrjeJe_a0eh/how-do-i-account-for-the-medco-merger-with-express-scripts?ppid=127878160 with respect to another Cash+Stock merger that recently occurred.  Your case will be similar.
      The Form 8937 is now posted here:  http://www.kindermorgan.com/investor/Form_8937_May_25_2012_Organization_Action.pdf
      That document includes a Statement 7 that outlines the calculation by example for the 'Mixed Election" option where the El Paso owner receives KMI shares, Warrants, and cash.  I'll outline how I would choose to handle that transaction.  

      Caveats:  The usual warnings apply.  I am not a tax pro,  Consult your own advisors as may be necessary.  Futher, I am not a current owner of KMI nor a prior owner of El Paso.  My objective would be to maintain tax information correctly - capital gains and tax basis of holdings, and end up with the proper cash and security holdings.  Your objectives may differ in which case you may be able to simplify what I suggest here.  

      The KMI form 8937 example is for one lot of 110 shares of El Paso with a tax basis of $20 / share or $2,200 for the whole lot.  I use that example and reference numbers presented there.  In a real file, you may have several lots, in which case, this process would be followed for each lot.

      For this example, the user has in Quicken 110 shares of El Paso at $20 per share tax basis.  The KMI submittal reports that the value received by the El Paso owner was $29.32 per El Paso share = 14.65 in cash and 14.67 in KMI shares and warrants.  Thus the owner has received more than their basis.  That additional value is taxable as capital gains.  The 29.32 is pretty much a fixed value (consult your tax advisor!).  

      Received in cash $14.65
      Received in stock and warrants $14.67
      Total Received for each share of El Paso held = $29.32

      What takes place from here depends on your cost basis of your El Paso shares
      Case 1 = Basis less than $14.67 (you bought cheap and have gains)
      Case 2 = Basis between $14.67 and $29.32 (you bought in-between) (the KMI example)
      Case 3 = Basis exceeds $29.32 (you bought expensive and have losses)

      Case 1 - Basis less than $14.67 (you bought cheap and have gains). You bought this lot of El Paso for less than $14.67 / share and are now receiving $29.32 of value per share for those shares for a gain that exceeds what you received in cash ($14.65). As such all of the cash you received needs to be considered capital gains.

      In Quicken, I would SELL the El Paso shares for the basis of those shares + $14.65 / share. This will generate a cap gains for those shares of $14.65 / share. I would BUY shares of KMI (0.4187 shares for every share of El Paso in this lot) for the same total basis as this lot of El Paso shares. This leaves $14.65 / share of El Paso as cash in the account. I would REMOVE shares of KMI just bought (since they now have the wrong acquisition date).  I would ADD shares of KMI using the 91.67% of the El Paso lot basis (0.4187 shares of KMI per El Paso share) and the El Paso lot acquisition date.  I would ADD shares of the KMI Warrants using 8.33% of the El Paso basis (0.6400 warrant shares per El Paso share) and the El Paso lot acquisition date.

      The linked information did not provide an example for this case, but suppose an example starts with 110 shares of El Paso with a basis of $10/share = $1,100 total basis. The Quicken transactions would be:
      1) 5/25/2012 SELL 110 Shares of El Paso for $24.65 / share = $2,711.50 ($10 basis + 14.65 cash = $24.65).
      2) 5/25/2012 BUY 46.057 shares of KMI for $1,100 (leaves $1,611.50 cash in account)
      3) 5/25/2012 REMOVE 46.057 shares of KMI
      4) 5/25/2012 ADD 46.057 shares of KMI basis = $1,008.41 acquired (date El Paso shares were acquired)
      5) 5/25/2012 ADD 70.4 shares of KMI Warrants basis = $91.59 acquired (date El Paso shares were acquired)


      Case 2 - Basis between $14.67 and $29.32 (you bought in-between). You bought your El Paso shares for an 'in-between' value such that you are currently showing a gain, but the gain is less than the cash you received (less than $14.65). Some but not all of the cash you received is current capital gains.

      In Quicken, I would SELL the El Paso shares for total value received = $29.32/share. This will generate a cap gains for those shares something less than $14.65 / share.  I would BUY shares of KMI (0.4187 shares for every share of El Paso in this lot) for $14.67 / El Paso share. This leaves $14.65 / share of El Paso as cash in the account. I would REMOVE shares of KMI just bought (since they now have the wrong acquisition date).  I would ADD shares of KMI using 91.67% of the El Paso shares basis and the El Paso shares acquisition date.  I would ADD shares of the KMI Warrants using 8.33% of the El Paso basis (0.6400 warrant shares per El Paso share) and the El Paso lot acquisition date.

      The example in the linked information is this case. That example starts with 110 shares of El Paso with a basis of $20/share. The Quicken transactions would be:
      1) 5/25/2012 SELL 110 Shares of El Paso for $29.32 / share = $3,225.20.
      2) 5/25/2012 BUY 46.057 shares of KMI for $1,613.70 (leaves $1,611.50 cash in account)
      3) 5/25/2012 REMOVE 46.057 shares of KMI  
      4) 5/25/2012 ADD 46.057 shares of KMI basis = $1,479.28 acquired (date El Paso shares were acquired)
      5) 5/25/2012 ADD 70.4 shares of KMI Warrants basis = $134.42 acquired (date El Paso shares were acquired)


      Case 3 - Basis exceeds $29.32 (you bought expensive and have losses). You bought your El Paso shares for a high figure and are now receiving less than you paid. You have a capital loss at this time and as such do not incur and capital gains through this merger event. You need to put $14.65 / El Paso share into your account tax-free as cash and carry on from there.

      In Quicken, I would SELL the El Paso shares for the basis of those shares. This will put cash in your account with no cap gains (or lossses) generated. I would BUY shares of KMI (0.4187 shares for every share of El Paso in this lot) for the total basis as this lot of El Paso shares less the $14.65 / El Paso share received in cash. This leaves $14.65 / share of El Paso as cash in the account. I would REMOVE shares of KMI just bought (since they now have the wrong acquisition date). I would ADD shares of KMI using 91.67% of the El Paso shares basis and the El Paso shares acquisition date.  I would ADD shares of KMI Warrants using 8.33% of the El Paso shares basis and the El Paso shares acquisition date.

      The linked information did not provide an example for this case, but suppose your cost basis on 110 shares of El Paso was $35/share. The Quicken transactions would be:
      1) 5/25/2012 SELL 110 Shares of El Paso for $35 / share = $3,850.
      2) 5/25/2012 BUY 46.057 shares of KMI for $2,238.50 (leaves $1,611.50 cash in account)
      3) 5/25/2012 REMOVE 46.057 shares of KMI
      4) 5/25/2012 ADD 46.057 shares of KMI basis = $2,052.03 acquired (date El Paso shares were acquired)
      4) 5/25/2012 ADD 70.4 shares of KMI basis = 186.47 acquired (date El Paso shares were acquired)

      After completing those sets of transactions for each lot of El Paso owned, it is time to sell the fractional shares for whatever cash was received in lieu of fractional shares. In the examples above you would be selling 0.057 shares of KMI at (per the link) $32.12 / share meaning you would have (should have) received $1.83 cash in lieu, and you would be selling 0.40 shares of the KMI Warrants at $1.91/share meaning you would have (should have) received $0.76 cash in lieu; a total cash-in-lieu amount of $2.59.  If multiple lots of El Paso are involved, it would be my expectation that you could define the lots used for that sale of the fractional shares. Consult your tax advisor!

      Hope this helps.
      • Thank you q.lurker for such a detailed discussion on this topic.   I really appreciate your help on this transaction - roneyc
      • Agreed, a huge help!
      • Yes thank you! p.lurker, you've helped me doubly since we also owned Medco. I have an odd issue, though. I chose the all-stock option (which is covered in STMT6 of the Kinder Morgan document). The stock and warrants I received match the expected amount. However, the amount of cash is a little off. It should be $14.53 per share, and we have 216 shares, making $3138.48, but the amount we received was $3139.19, a difference of 71 cents. Though not a large difference, I can't explain it, since that would make the price per share be $14.5333. Do you have any thoughts on why this happened?
      • Chesterton Asked:  "Do you have any thoughts on why this happened?"

        Not really.  Maybe interest - if your broker was slow to distribute to your account?  You can ask your broker.  

        I'd be inclined to fold it into the $14.53 figure - that is use the 14.5333 figure instead -- since the $0.71 is such a small difference.  Just my opinion
      • I am helping an in-law who also had some El Paso stock. She enrolled it in the Dividend Reinvestment Program (DRIP) from 2003 through 2010. The last two steps in the above process will mean I must enter two entries (one for Kinder Morgan stock and one for Kinder Morgan Warrants) for every DRIP purchase, since the dates are all different and each entry has a different cost basis. That's 4 dividends/year x 8 years x 2 entries/dividend =  64 entries. It seems I needto do this, since another company could acquire Kinder-Morgan someday the same way that Kinder-Morgan acquired El Paso, and I would need those exact cost bases to know how to treat the part cash/part stock that I receive. But if there is a way to avoid entering 64 records into Quicken, I'd really like that.
      • I make no claims about offering legitimate tax advice.  I am not a tax pro in any fashion.  I will suggest that if you are willing to commit to treating the entire set of DRIP related holdings as one lot, you probably could get by with consolidating the 64 entries into 2 entries.  You are basically saying 'when I sell, I'll sell them all'.  At that point for the tax return, you'd be reporting the whole basis and as a long term holding.  If you do, leave good notes lying around someplace, just in case.
      By the way, I've about convinced myself that the ticker symbol for Kinder Morgan Warrants is KMI' for Quicken, since that's the only Kinder Morgan related ticker that is in the range that would make sense for a warrant. The Quicken website doesn't have a daily history of its price, but it does give the range. I used this ticker symbol to add the Kinder Morgan warrants per p.lurker's suggestion.