I had bought 100 shares of company A back in 2009. However, that company merged with company B, and they announced that I will be receiving 1 share of company B for every 8 shares held in company A. Now when I divide 100 by 8, the total is 12.5. Do I get 12 shares or 13 shares in company B? In case I get 12, where does the value of the remaining .5 shares go? In case I get 13, who pays for the excess amount?

  • Note that usually new shares in B are created to give to the shareholders of A. So even if you did get 13, nobody would have an accounting line-item "half a share for user19894". It's just that your proportional holding in the new company compared to someone with 200 shares of A, would be slightly different from what your proportional holding in A was. All the other shareholders between would "pay", as part of the merger deal they voted for. The same applies with cash, it's going to be rounded to a penny, and the amount of cash needed will depend on exact individual shareholdings. May 27, 2015 at 7:02
  • The extra fractional shares go to Peter Gibbons...
    – user12515
    May 27, 2015 at 15:53

1 Answer 1


They generally issue the extra fraction as cash. When they do a reverse split this is the way to get rid of small investors. They take 1000 shares pre-split and turn it into 1 share post split. If you own less than a share you are given cash.

If those shares are part of a larger fund (ie in a 401K) the fund will take care of this because each member can own fractional shares.

The documentation for the merger should discuss the fractional shares and how they handled and when any cash will be received.

  • And in the US, the tax treatment is a royal pain. You must compute as if you receive the imaginary fractional share, pro-rata allocate basis to it and the actual new shares from your old/replaced shares, sell it for the amount of cash-in-lieu received, and report that as a capital gain or loss, short or long depending on your holding period for the old stock. If you had multiple lots of old stock this is a nightmare, and even worse if the merger was already mixed cash+(whole)shares, as some are; see Pub 550 for the gory details. May 27, 2015 at 14:33

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