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I owned 136 shares of Johnson Controls (JCI) before its merger with Tyco (TYC) and later spinoff of Adient (ADNT). After the Tyco merger I received 113 shares of the new JCI along with cash-in-lieu, and I am trying to figure out the tax consequences.

Usually when there is a merger or a spinoff of a public company, the parent company posts guidance on their investor relations webpage (things like "38.5678% of cost basis is apportioned to company Y") but in this case JCI does not seem to be helpful.

How can I figure this stuff out? I found this page at Schwab (not my broker):

http://www.schwabpt.com/public/file/P-9508890/SPT013643.pdf

(screen shot of one excerpt below) but I don't know how to interpret it, and how could I verify the information it contains from SEC filings?

enter image description here

The only useful thing I could find on JCI's website is a PDF that says

For purposes of determining each former JCI shareholder’s pro rata share of the Tyco ordinary shares received as merger consideration, the total number of such shares received by all former JCI shareholders was 527,445,124, excluding fractional shares. U.S. federal income tax law does not specifically prescribe how to determine the fair market value of the Tyco ordinary shares received as merger consideration for purposes of withholding, or calculating gain or basis. There are several possible methods for determining such fair market value. One possible method may be to utilize the average of the highest and lowest prices on the New York Stock Exchange for shares of Tyco stock on September 2, 2016, yielding a value of $45.69 per share. You should consult your tax advisor to determine what measure of fair market value is appropriate.

The "share exchange ratio" on Schwab website of 0.8357 seems correct; my brokerage statement reported I got 113 shares + cash-in-lieu for 0.655 shares.

  • What was the original price/date when you purchased JCI? – Ben Miller Jan 16 '17 at 5:34
  • can't remember... late 1990s, maybe 2001 at latest – Jason S Jan 16 '17 at 19:59
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I finally found it!

Johnson Controls International PLC FORM 8-K/A (Amended Current report filing) Filed 10/03/16 for the Period Ending 09/02/16 from http://investors.johnsoncontrols.com/financial-information/johnson-sec-filings, says on page II-6: (my emphasis for the relevant paragraph)

On September 2, 2016, Johnson Controls and Tyco completed their combination pursuant to the Agreement and Plan of Merger (the “Merger Agreement”), dated as of January 24, 2016, as amended by Amendment No. 1, dated as of July 1, 2016, by and among Johnson Controls, Tyco and certain other parties named therein, including Jagara Merger Sub LLC, an indirect wholly owned subsidiary of Tyco (“Merger Sub”). Pursuant to the terms of the Merger Agreement, on September 2, 2016, Merger Sub merged with and into Johnson Controls with Johnson Controls being the surviving corporation in the merger and a wholly owned, indirect subsidiary of Tyco (the “merger”). Following the merger, Tyco changed its name to “Johnson Controls International plc.”

Immediately prior to the merger and in connection therewith, Tyco shareholders received 0.955 ordinary shares of Tyco (which shares are now referred to as “combined company ordinary shares”) for each Tyco ordinary share they held by virtue of a 0.955-for-one share consolidation. In the merger, each outstanding share of common stock, par value $1.00 per share, of Johnson Controls (“Johnson Controls common stock”) (other than shares held by Johnson Controls, Tyco and certain of their subsidiaries) was converted into the right to receive either the cash consideration or the share consideration (each as described below), at the election of the holder, subject to proration procedures described in the Merger Agreement and applicable withholding taxes. The election to receive the cash consideration was undersubscribed. As a result, holders of shares of Johnson Controls common stock that elected to receive the share consideration and holders of shares of Johnson Controls common stock that made no election (or failed to properly make an election) became entitled to receive, for each such share of Johnson Controls common stock, $5.7293 in cash, without interest, and 0.8357 combined company ordinary shares, subject to applicable withholding taxes. Holders of shares of Johnson Controls common stock that elected to receive the cash consideration became entitled to receive, for each such share of Johnson Controls common stock, $34.88 in cash, without interest, subject to applicable withholding taxes. In the merger, Johnson Controls shareholders received, in the aggregate, approximately $3.864 billion in cash. Immediately after the closing of, and giving effect to, the merger, former Johnson Controls shareholders owned approximately 56% of the issued and outstanding combined company ordinary shares and former Tyco stockholders owned approximately 44% of the issued and outstanding combined company ordinary shares.

This answers what actually happened in the transaction; as far as my cost basis in the new JCI, it's a little more obscure; on page II-7 it says:

For pro forma purposes, the valuation of consideration transferred is based on, amongst other things, the adjusted share price of Johnson Controls on September 2, 2016 of $47.67 per share

and on page II-8:

Johnson Controls adjusted share price as of September 2, 2016 (2): $47.67

(2) Amount equals Johnson Control closing share price and market capitalization at September 2, 2016 ($45.45 and $29,012 million, respectively) adjusted for the Tyco $3,864 million cash contribution used to purchase 110.8 million shares of Johnson Controls stock for $34.88 per share.

and both agree with the information posted at http://www.secinfo.com/dpdtb.w6n.2n.htm#1stPage (R66 Merger Transaction Fair Value of Consideration Transferred (Details)) which I can't seem to find on an "official" website but it purports to post from the SEC EDGAR database.


So for each share of JCI, it had a fair value of $47.67 prior to the acquisition, and transformed into $5.7293 in cash, plus 0.8357 of "new" JCI shares with a basis of $47.67 - $5.7293 = $41.9407. Stated in terms of "new" JCI shares, this is $50.1863 (=$41.9407/0.8357) per "new" JCI share.

(I'm not really 100% sure of this calculation though.)


I also found JCI's Form 8937 which states

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. U.S. federal income tax law does not specifically prescribe how former JCI shareholders should determine the fair market value of the Tyco ordinary shares received in the merger.

One possible method of determining the fair market value of one Tyco ordinary share is to use the average of the high and low trading prices on the date of the merger, which was $45.69.

Other methods for determining the fair market value of Tyco ordinary shares are possible. Former JCI shareholders are not bound by the approach described above and may, in consultation with their tax advisors, use another approach.

as well as similar text on the IRS website:

One possible method of determining the fair market value of one Tyco ordinary share is to use the average of the high and low trading prices on the date of the merger, which was $45.69.

Using this figure, former JCI shareholders that elected to receive shares in the merger would receive cash and Tyco ordinary shares worth approximately $43.91 per share of JCI common stock exchanged in the merger (assuming no cash received in lieu of fractional shares).

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The $47.67 per share figure is the trading price, or fair market value, of the OLD Johnson Controls, and should not be used to figure your gain nor to figure your basis in the new Johnson Controls International. Your new basis is the total of the gross proceeds received; that is, the cash plus the fair market value of the new shares, which was $45.69 per share. (I am not referring to cash-in-lieu for fractional shares, but the $5.7293 per share received upon the merger.) A person holding 100 shares of the old Johnson Controls would have received $572.93, plus 83.57 shares of the new company. Ignoring the fractional share, for simplicity's sake, gross proceeds would equal 83 x $45.69 = $3792.72 in fair market value of shares, plus the cash of $572.93, for a total of $4365.20. This is your basis in the 83 new shares. Regarding the fractional share, since new basis is at fair market value, there should be no gain or loss recognized upon its sale.

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