Background
On 26 July 2018, Fairfax Media Ltd (FXJ) announced it had entered into a Scheme Implementation Agreement with Nine Entertainment Co Holdings Ltd (NEC), whereby Nine acquired all of the issued shares of Fairfax via a Scheme of Arrangement. The Scheme was approved and became effective on 12 October 2018.
On the Scheme Implementation Date of 7 December 2018, Nine paid to eligible Fairfax shareholders the following for each Fairfax share held on the Scheme Record Date (30 November 2018):
Scheme consideration
- Cash consideration of $0.025, and
- Scrip consideration of 0.3627 NEC shares
Cost Base Proportion
The cost base of the Fairfax shares attributable to the Nine shares is calculated as follows:
(Market value of 0.3627 NEC shares)/(Market value of the Scheme Consideration, i.e. 0.3627 NEC shares received at the Scheme Implementation Date + cash received)
= ($1.658 * 0.3627) / ($1.658 * 0.3627 + $0.025)
= 96.0087%
The market value of an ordinary share in Nine is worked out as at the time of CGT event A1, which is on the Implementation Date, 7 December 2018. Class uses $1.658 which is the closing price of the Nine share on 7 December 2018 in the calculation.
This corporate action can be run in bulk at business level, or at fund level. For illustrative purposes, this article outlines the steps at fund level.
Worked Example
The example will cover the following scenarios:
Scenario 1: Choose scrip for scrip rollover relief
Scenario 2: Choose without scrip for scrip rollover relief
Choose scrip for scrip rollover relief
10,000 units of Fairfax shares were purchased by an SMSF on 15 November 2018 for $10,000.
Navigate to Fund Level > Investments > Browse Corporate Actions
- Click Action on the "Takeover/Merger - Scrip" event to record the Nine shares received with the attributable Fairfax cost base to be transferred, completing all of the required details. When done, click Submit
- Click Action on the "Takeover/Merger - Cash" to record the capital proceeds for disposing of the Fairfax shares, and complete the details. When done, click Submit
Choose without scrip for scrip rollover relief
10,000 units of Fairfax shares were held by the SMSF on the record date of the corporate action. The Fairfax shares have not applied for the transitional CGT relief in 2017FY.
Navigate to Fund Level > Investments > Browse Corporate Actions
-
Click Action on the Takeover/Merger - Scrip and select No to demerger relief
The cost base for the new NEC shares will be $10,000 x 0.3627 x 1.658 = $6,013.57 with CGT date same as the implementation date, i.e. 7 Dec 2018. When done, click Submit
- Click Action on the Takeover/Merger - Cash to record the capital proceeds for disposing of the Fairfax shares. The remaining cost base for Fairfax shares are sold for $250. Any notional deferred gains will be realised. When done, click Submit