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Re: 3Com /Palm Spinoff

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Posted by Mark on July 29, 2000 at 10:42:05:

In Reply to: 3Com /Palm Spinoff posted by Brendan Collins on July 28, 2000 at 22:08:03:

: 3Com just spun off Palm Computing. The ratio was 1.4832 shares of PALM for each 3COM with cash for partial PALM shares remaining.
: How do I show the transaction, ensuring that my cost basis is correct for each? The cost basis adjustment for COMS is 21.02%, 78.98% for PALM. COMS was trading at ~$65 and is now ~$13. No adjustment in PALM. When I tried to adjust the original price paid to account for the cost/value, the problem that results is a graphical misrepresentation with the share prices as pre-spin-off.(COMS "dropped" from 65 to 13 in a day)

: Any ideas on this one??? I searched for the topic on your board with no luck.

: Thanks - Brendan Collins

Hi Brendan,
From our "Tips & Tricks" page we have a link to a page discussing how to
handle spin offs:

I've copied it here:

How to Handle Stock Spin-Offs

First, record a "return of capital" distribution in the parent investment. This reduces the basis of the parent company by the amount of the spin-off, while maintaining a constant number of shares owned.

Next, create a new investment for the spun-off child company. Record a purchase in this new investment for the amount of the spin-off and with the received number of shares due to the spin-off. If you received cash for a fractional number of spun-off shares, rather than fractional shares in the child company, record this as a sell transaction in the child investment for the fractional number of shares.

Example Spin-Off

Assume you owned 45 shares of Pepsi. Assume Pepsi spun-off Tricon, and every stockholder of Pepsi received 1 share of Tricon for every 10 shares of Pepsi they owned. You were informed that from the spin-off you received $147 worth of Tricon stock. To handle this you would record a return of capital distribution in Pepsi for $147.

Next, if you don't already own Tricon, create a new investment (File/New Investment) for Tricon. Record a purchase transaction for 4.5 shares of Tricon with a value of $147. The 4.5 shares is because you owned 45 shares of Pepsi, and the spin-off was 1 share of Tricon for every 10 owned in Pepsi. Assuming you ended up only really owning 4 shares of Tricon and were paid cash for the remaining 0.5 shares, record a sell transaction in Tricon for the 0.5 shares, at the same per share price as the previous purchase.

Mark Beiley

Fund Manager for Windows 3.1x/95/98/NT

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