Does anyone understand the impact of the Johnson Controls merger on shareholders?

[BrianB]

Does anyone out there own or follow Johnson Controls? I've been web searching for details of what the Johnson Controls / Tyco merger will mean for JCI stockholders. This is my understanding, I would appreciate any confirmation or correction:

1. The merger was overwhelmingly approved, that question is settled.

2. JCI stockholders can choose to take new shares at a 1:1 rate, or tender their shares at $34.88 each in cash. Shares that are not voted will be assumed to be opting for the stock exchange. Either option will be a taxable event.

3. JCI will receive $3.9b cash from Tyco. This will be used to pay the tender offers. If there are not enough tender offers, the remaining cash will be distributed to JCI shareholders on a pro rated basis at the $34.88 rate. The distribution will reduce the share exchange rate.

With Friday's closing price of $43.89 I don't see anyone tendering their shares at $34.88, so this scenario (from the JCI website) is likely to occur:

http://www.johnsoncontrols.com/-/media/jci/corp/tyco/ent_merger_jcishareholder_scenario1.pdf?la=en

Essentially, 17.5% of my shares are being "called" at $34.88 if I opt for share exchange or don't vote.

My cost is $37.72 for shares purchased less than 12 months ago so I will lose about 7% on the called shares, plus I'll have some short term capital gains on the exchanged shares.

Is this right? It doesn't seem like a good deal to me. Should I just sell @ $43.89 and wait for the dust to settle?

 

[retired2015b2d]

My broker called me on this a couple of days ago. I owned several thousand shares. family had owned a bunch for many years. My uncle had decided to sell all of his shares recently, though he thought the new company may do well. I am younger and decided to sell half and keep half of the new stock. Kinda the middle of the road. I sold on open market at 45.16 a share this week.


Sent from my iPad using Early Retirement Forum

 

[Another Reader]

I have a little in the DRIP from years ago. The shares were in the $45's when I got my ballot. Voted against combining with the poorly run Tyco, but lost. Got the cash offer and chucked the paper in the shredder. My shares are in DRIP jail and I am stuck with being screwed over by company management. It's not enough to worry about, but I hate to see a good company get dragged under and at the expense of the shareholders.

ETA: If I could sell on the open market, I would do so.

 

[BrianB]

Thanks for the comments.

Retired, I think you will get a prorated cash buy out for the 50% of shares you still hold, so remember you will be selling some to the company at $34.88.

A.R., I'm not as pessimistic as you on Tyco management but I just can't see the logic of holding an overpriced share just to sell it back to the company at a discount.

I'm going to sell all my 270 shares on Monday unless someone finds a flaw in my thinking.

 

[Sunset]

So it seems this low tender price was set when the stocks of both companies was lower, and now does not make sense.

I don't hold any of these (except in index funds) but if I did, I'd sell on the market, and if I liked the company, buy back after the merger since in the turmoil I suspect the stock will drop. If it didn't drop, I'd simply buy something else.

 

[hasletthoney]

I have to say it is hard to get a straight answer on the merger from Johnson Control or anyone else associated with its passing and implementation. The article Brian posted is one I have looked at several times and believe that is what will happen. Most of us long time holders will be paying capital gains and the company management, although big stockholders, will have it covered by their big payouts. I am furious since I voted no not just because of the tax issue but because of the affect of Brexit on Ireland and its tax laws.

 

[triangle]

Thanks for the reminder and heads up about this transaction. I have not looked into this enough yet, especially the tax considerations but my understanding based largely on the link in the opening post and other sources is that if you did not vote or voted for the merger then you will get (0.825 * number shares of JCI) of shares in the new company along with $6.085/share of JCI. The stock quote of both TYC & JCI look pretty similar right now and the increase above $34.88 likely represents the rise in market value since the deal was originally announced.

Ignoring tax consequences I would not expect any advantage in selling before the merger, that should be done based on your belief in the new enterprise. (If I were to speculate without doing proper research I might imagine that the difference in todays closing prices TYC=$45.59 and JCI=$45.45 represents a small potential loss ($0.14) people were willing to pay to get out of JCI ahead of the merger closing. To avoid the confusing entanglement that these mergers and odd stock lots and extra brokerage fees that these mergers can often create. Especially if one is a small shareholder).

 

[BrianB]

Day one of trading in the new company, price is up to $47.80. I sold at $43.80 so missed out on the ~10% uptick. Estimating that 15% of my shares would have been "called" at $34.88 the per share value would be: 85% * $47.80 + 15% * $34.88 = 45.87 average per share.

As of this moment my decision doesn't look so good, we will see what happens going forward.

BTW, I noticed that the link I posted is broken. I tried to find a good URL but could not.

 

[hasletthoney]

I too have found that link removed from the JC merger page. However your estimate of the distribution is pretty accurate as their latest info page states roughly 55% returned their election forms with 1.1% choosing to cash out. The other 43% didn't return the form at all so they opt by default for the exchange. You didn't do so bad ...you're still above what JC is paying for the called shares.

 

[FinancialDave]

Has anyone with JCI in a taxable account figured out the details of the cost basis on this Merger?

 

[grahamcharles]

i went along with johnson controls merger, kept my shares, got a check for 164$ as part of the merger. got a 1099b form that doesn't make any sense. how do i claim this on my taxes

 

[FinancialDave]

i went along with johnson controls merger, kept my shares, got a check for 164$ as part of the merger. got a 1099b form that doesn't make any sense. how do i claim this on my taxes

I am guessing you had about 28.625 shares?

The merger is reported as a sale, which is what your JCI 1099-B should show; the date you bought the shares, the cost basis, the date sold = 9/2/2016, and the selling price.

If the shares were bought after 1/1/2011 then its up to the broker to calculate the cost basis, so you should have everything you need to report on the 1099-B, if you have held the shares longer, then you may have some work to do.

You should also have a second 1099-B if any fractional shares of ADNT were sold. Once again details should be on the 1099-B.


You should also have a couple of dividend statements, one from JCI in the US and one from JCI in Ireland. Also need to be reported as shown.

Does this sound about like what you have?

 

[grahamcharles]

That is accurate, thank you

 

[Tommy2470]

Just Confused

I am in the same situation as Grahamcharles.
My 1099-B has 3 sections:
* Box 2: Covered securities (short term for Form 8949 box A)
* Box 2: Covered securities (long term for Form 8949 box D)
* Box 5: Non-Covered securities. It has a value for Proceeds (box 1d) but no Cost value. I can look up the total cost for these shares. The shares were purchased longtime ago...
My question is "Do I report this non-covered securities transactions as taxable capital gain in Form 8948 box E?" In other word, when I exchange JV,Inc stock for JCI plc stoke, does IRS treat it as if I sell the old sock and then purchase the new stock?
Please help to clarify it for me.

 

[FinancialDave]

I am in the same situation as Grahamcharles.
My 1099-B has 3 sections:
* Box 2: Covered securities (short term for Form 8949 box A)
* Box 2: Covered securities (long term for Form 8949 box D)
* Box 5: Non-Covered securities. It has a value for Proceeds (box 1d) but no Cost value. I can look up the total cost for these shares. The shares were purchased longtime ago...
My question is "Do I report this non-covered securities transactions as taxable capital gain in Form 8948 box E?" In other word, when I exchange JV,Inc stock for JCI plc stoke, does IRS treat it as if I sell the old sock and then purchase the new stock?
Please help to clarify it for me.

The short answer is yes this is treated as if you sold the JCI Inc and then bought new shares. The bigger issue is the cost basis should be adjusted up by the dividends received. This is quite straight forward for the normal dividend checks on the JCI shares you held before the Merger, however most got a second dividend check related to the Merger and related to the check you received based on the $5.7293 times the number of shares you owned. It is my "opinion" that $3.885 times the number of shares of this check relates to the dividend check (at least in my case,) so this amount can also be added to your basis (essentially the amount of the larger dividend check.)

This should not be considered tax advice, and some on-line information suggests there might be more than one way to handle this, but this is how I see it.

fd

 

[Tommy2470]

One More Question

Thanks a lot, FinancialDave. Now I think I can deal with the 1099-B.
Just one more question - Do I have to report the check I received based on the $5.7293 times the number of shares I owned to IRS? Should it be treated as dividends (but I did not receive a 1099-Div for it)? Or is it part of the Proceeds in the 1099-B?

 

[FinancialDave]

Tommy,

I believe it is part of the money for selling ALL of the shares. This is confirmed by the broker statement showing that all the shares you owned were sold as reported in covered shares sold ST, covered shares sold LT, and uncovered shares sold. I believe what happened is that this was a cash distribution, part of which was a dividend in an effort to reduce the number of shares you held of JCI after the Merger and spin-off. I do believe the brokers holding these shares should have done a better job showing this dividend distribution and where it came from. However, the only thing you need to know (I believe) is that it IS a dividend (evidence of 1099-DIV) and so it is an adjustment to your basis on the sale of uncovered shares.

Bottom line, I don't believe you need to report the check per se, as it is already being reported within the 1099-B and 1099-DIV statements. Once again not tax advice but just my opinion.

fd

 

[Tommy2470]

Thanks

Thanks again.
Now I can file my return.

 

[Corgitodd]

Any other suggestions on calculating basis of old Johnson Controls stock?

 

[FinancialDave]

Any other suggestions on calculating basis of old Johnson Controls stock?

If you can't convince the institution holding the shares (who should have sent you a 1099-B) to do it for you then you have to start by totally up all the money you spent buying the shares. If dividends were added to purchase new shares along the way, then the totals of dividends that purchased new shares needs to be added to your cost basis as well.