Background
On 15 August 2019, IPH Limited (IPH) and Xenith IP Group Limited (XIP) announced that they had entered into a Scheme Implementation Deed whereby IPH will acquire all of Xenith's shares via a Scheme of Arrangement.
Under the Scheme of Arrangement, Xenith shareholders will receive Scheme Consideration of either:
Option 1: Standard Consideration (Cash and IPH Shares)
- 0.1261 IPH shares per Xenith share held, and
- $1.28 per Xenith share held
Option 2: Maximum Scrip Consideration (Cash and IPH Shares)
- 0.27136 IPH shares per Xenith share held, and
- $0.2776 per Xenith share held
Option 3: Maximum Cash Consideration (All Cash)
- $2.15 per Xenith share held
- Xenith shareholders could make election of either Standard Consideration (default option in Class), Maximum Scrip Consideration or Maximum Cash Consideration.
- Class will only automate the Standard Consideration with implementation date 15 August 2019 as the default option. The steps of applying Maximum Scrip Consideration and Maximum Cash Consideration are provided below.
Resolution
Standard
Maximum Scrip
Maximum Cash
This is automated via Corporate Action Screen
Navigate to Fund level > Investments > Browse Corporate Actions
To use the corporate action template of XIP Takeover/Merger - Scrip
- Click on "Action"
- Click on "Create Target Holdings" if necessary, to create IPH investment account
- Select either "Yes" or "No" for the question "Is this a demerger eligible for tax relief under Division 125 ITAA 1997?"
- Click "Submit"
To use the corporate action template of XIP Takeover/Merger - Cash
- Click on "Action"
- Confirm details of the event and click "Submit"
The remaining cash component will not be able to receive CGT rollover relief, it will be used to calculate capital gains/losses.
Refer to this user guide to process Corporate Actions in bulk.
This is a manual process via Corporate Action Screen
If the XIP shareholder elected maximum scrip consideration, then you will not be able to use the Class corporate action templates. Instead, you would need to process this corporate action manually. Below are the steps on how to do this.
Worked Example
Scenario: If the XIP shareholders elected to receive maximum scrip consideration with 364,470 units of shares were held, then they should receive 98,902 units of IPH shares (rounded down to the nearest whole number of new IPH shares) and $101,176.87
Step 1: Compute the percentage of cost base of XIP applicable to the exchanged IPH shares
When partial scrip for scrip rollover relief for maximum scrip consideration is chosen, the cost base of XIP that is applicable to the exchanged IPH shares is worked out as follows:
Cost base of XIP for scrip component = (MV of IPH shares as at implementation date * 0.27136 IPH shares for each XIP share held) / (MV of IPH shares as at implementation date * 0.27136 IPH shares for each XIP share held + cash received)
= $8.26 * 0.27136 / ($8.26 * 0.27136 + $0.2776)
= 88.9799%
Step 2: Compute the percentage of cost base of XIP for cash component
The remaining cash component will not be able to receive CGT rollover relief. It will be used to calculate capital gains/losses for disposing XIP shares.
Cost base of XIP for cash component = Cash received / (MV of IPH shares as at implementation date * 0.27136 IPH shares for each XIP share held + cash received)
= $0.2776 / ($8.26 * 0.27136 + $0.2776)
= 11.0201%
Market value of IPH as at implementation date 15 August 2019, is $8.26. If you use a different implementation date, you should update the market value in the formula accordingly.
Step 3: Process the Spin-off or demerger event for IPH shares received with the applicable XIP cost base to be transferred by
Navigate to Fund level > Transactions > Investment - Corporate Action > Spin Off or Demerger
- Select XIP for "Source Holding Account"
- Enter 15 August 2019 for "Date of Spin Off or Demerger"
- Select IPH for "Target Holding Accounts"
- Enter "Target Quantity"
- Enter 88.9799 for "Percentage of Source"
- Click on "Update Results"
- Confirm details and click on "Submit"
The scrip component will be eligible for scrip-for-scrip rollover relief, therefore the CGT is deferred to the subsequent sale, and original purchase date of XIP units will be used as purchase date for IPH units.
Step 4: Take up the capital proceeds for disposing of XIP shares
Navigate to Fund level > Transactions > Investment - Sell > Listed Security Disposal
The implementation date is 15 August 2019 and the amount of cash received = the number of Xenith share held * $0.2776.
The remaining cash component will not be able to receive CGT rollover relief, it will be used to calculate capital gains/losses.
This is a manual process via Corporate Action Screen
If the XIP shareholder elected maximum cash consideration, then you will not be able to use the Class corporate action templates. Instead, you would need to process this corporate action manually by taking up the capital proceeds for disposing of XIP shares.
Navigate to Fund level > Transactions > Investment - Sell > Listed Security Disposal
The implementation date is 15 August 2019 and the amount of cash received = the number of Xenith share held * $2.15.
The remaining cash component will not be able to receive CGT rollover relief, it will be used to calculate capital gains/losses.