I bought 37 shares of BAX in December 2013 at a price of $67.71 per share. Consequently, I received 37 shares of BXLT as a result of the spin-off. With this addition, DivGro now contains 47 shares.
I've decided to hold onto these BXLT shares rather than sell them. I like the financial objectives of both companies. BAX intends to accelerate profit growth over the next 5 years through geographic expansion and new product introduction. BXLT will focus on growth, led by personalized treatments for patients with rare diseases in hematology, immunology and oncology.
The spin-off has been structured as a tax-free distribution for U.S. federal income tax purposes. Details of the spin-off are available on Baxter's website and includes information on cost-basis treatment for BAX shares.
I'm following the suggested approach to determining fair market value of BAX shares, which I'm paraphrasing here:
To determine the fair market value of BAX and BXLT shares, use the closing price on 1 July 2015 for BAX ($38.86 per share) and BXLT ($31.50 per share). Based on these prices and given the 1:1 distribution ratio, 55.23% of a BAX shareholder’s aggregate tax basis should be allocated to the shareholder's shares of BAX and 44.77% to the shareholder's shares of BXLT.
Spin-off Details
Shares of BAX owned
| ....... |
37
| ||
BAX aggregate tax basis @ $67.71 per share
| ....... | $2,505.31 | (A) | |
Shares of BXLT received (1:1 distribution)
| ....... |
37
|
Tax Basis Allocation | |||||
Ticker | #shares owned | closing price 07/01/15 |
fair market
value 07/01/15 |
%of total
fair market value 07/01/15 (B) |
allocated
tax basis
(A)x(B) |
| _________ |
__________
|
__________________
|
_____________
|
____________
| _____________ |
| BAX |
37
|
$38.86
|
$1,437.82
|
55.23%
|
$1,383.68
|
| BXLT |
37
|
$31.50
|
$1,165.50
|
44.77%
|
$1,121.63
|
_____________
|
____________
| _____________ | |||
$2,603.32
|
100.00%
| $2,505.31 | |||
I've updated my portfolio to reflect the allocated tax bases for BAX and BXLT. Because I like buying shares in chunks of $2,500 at a time, BAX and BXLT are no longer full positions. For now, I'll keep BAX and BXLT as partial positions.
In future, I could buy more shares of each company and turn these into full positions. Before doing so, I'd like to see how the spin-off impacts dividends. Hopefully, the combined dividend (should BXLT decide to pay a dividend) would match or exceed the pre-spinoff amount of 52¢ per share every quarter!
Do you own BAX? If so, are you holding onto your BAX and BXLT shares?
Thanks for sharing. I manually figured out the cost basis to 55:45 based on the numbers from my account. I should have just read their website!
ReplyDeleteLike you, I will hold on to both companies. I will probably add to both to increase the positions accordingly.
D4s
Hi D4S -- 55:45 is close enough! The website suggests, 55.2% to 44.8%, but I wanted to be a little more precise. It doesn't make a big difference, though... just a few pennies to either side. Good job figuring it out yourself manually!
DeleteTake care!
FerdiS
Hi FerdiS, I am an owner also and also holding the spin-off. There is little advantage to selling in my opinion, especially since I think the prices of both have gone down slightly post split. Mine is a small position, so I am just curious to watch and see how the thing works out. Its my first spin-off so I am using it as a learning exercise.
ReplyDeleteOne quick question, why did you use the closing price of 7-1 for BAX & BXLT? Shouldn't you use the opening price? Just trying to learn. Thanks
DeleteHi Mike -- not selling makes sense, especially if its a small position. As far as using the opening or closing price, I followed the suggestion/example in the cost basis document on Baxter's website (linked in my article). Also, this:
Delete"Fair market value generally is the price at which property would change hands between a willing buyer and a willing seller, neither being under any compulsion to buy or sell and both having reasonable knowledge of the facts. You should consult your tax advisor to determine what measure of fair market value is appropriate."
I suppose one can argue that any price between the low and high of the day could serve as "fair market value", since trades took place in that range of prices.
Cheers
FerdiS
I'M holding on as well. If they reduce the dividend, I will still hold on.
ReplyDeleteSounds like a solid plan! I like BAX and it seems like BXLT could do nicely, too!
Delete