8

Consider this example:

Siemens is going to have a spin-off (next Monday). If I owned, say, 10,000 shares of Siemens bought at an average price of 80 euros, my cost would be 800,000 euros. In the spin-off, for every 10 shares of Siemens, I will get 1 share of the company OSRAM Licht AG. So, I would get 1,000 shares of OSRAM.

How can I correctly split my original costs between the shares I'll have in both companies?

I was thinking perhaps this way:

On July 5th, 2013 on the Frankfurt Stock Exchange, the closing price for Siemens was 78 euros. Assuming the price on Monday, July 8th, drops to 75 euros (ex-spin-off price), then the market price drop from 78 to 75 euros can be assumed "adjusted" due to the spin-off.

Should I multiply 3 euros by 1,000 OSRAM Licht AG shares, and deduct 3,000 euros from 800,000 euros to re-value my Siemens shares, to 797,000 euros? And value the cost of my OSRAM Licht AG shares at 3,000 euros?

Or, is calculating the cost basis for shares due to a spin-off not as simple as this, and other information is necessary? If so, what do I need to know?

11

Having all of the numbers you posted is a start. It's what you need to perform the calculation. The final word, however, comes from the company itself, who are required to issue a determination on how the spin-off is valued.

Say a company is split into two. Instead of some number of shares of each new company, imagine for this example it's one for one. i.e. One share of company A becomes a share each in company B and company C. This tell us nothing about relative valuation, right? Was B worth 1/2 of the original company A, or some other fraction?

Say it is exactly a 50/50 split. Company A releases a statement that B and C each should have 1/2 the cost basis of your original A shares.

Now, B and C may very well trade ahead of the stock splitting, as 'when issued' shares. At no point in time will B and C necessarily trade at exactly the same price, and the day that B and C are officially trading, with no more A shares, they may have already diverged in price.

That is, there's nothing you can pull from the trading data to identify that the basis should have been assigned as 50% to each new share.

This is my very long-winded was of explaining that the company must issue a notice through your broker, and on their investor section of their web site, to spell out the way you should assign your basis to each new stock.

4

I was doing my taxes in the US (called Form 1040) and wanted to find out how to figure out the cost basis for the $3.006 that I received for each Siemens ADR that I hold in July 2013. I found that the cost-basis allocation ratio is as follows:

  • Siemens AG: 96.48%
  • Osram Licht AG: 3.52%

Thus for the original poster the cost-basis is:

  • Siemens = 800,000 * 96.48% = 771,840 euros
  • Osram = 28,160 euros

Hope this helps someone.

2

From my understanding:

Original Holding: Siemens - 10,000 units at 80 Euros/unit Cost = 800,000 euros

Spin-off: Every 10 Siemens get 1 OSRAM

On July 5th, 2013: Siemens closing - 78 Euros

On Monday, July 8th: Ex-date (opening) - 75 Euros

Hence: Market value for:- 1. Siemens: 75 * 10,000 = 750,000 euros 2. OSRAM: (10,000 / 10) * (78 - 75) = 3,000 euros

Total Market value = 780,000 + 3,000 = 753,000 euros

Ratio for: 1. Siemens = 750,000 / 753,000 = 0.996015936 2. OSRAM = 3,000 / 753,000 = 0.003984063

Cost for: 1. Siemens = 800,000 * 0.996015936 = 796,812.75 2. OSRAM = 3,187.25

Your Answer

By clicking “Post Your Answer”, you agree to our terms of service, privacy policy and cookie policy

Not the answer you're looking for? Browse other questions tagged or ask your own question.