Good news and Bad news - Takeover of my largest holding

[copyright1997reloaded]

Well today my largest non mutual fund holding (LLTC - Linear Technology) received a takeover offer from Analog Devices. The stock was up 14 points (almost 29%) today.

The good news is that Linear is my largest non mutual fund equity holding! The bad news is that the take over offer (of $60/share) is mostly in cash ($46) with the remainder in Analog devices stock.

Why is this bad news to get an almost all cash offer? Because I will have massive capital gains, as my average cost on LLTC is under $1/share. (I've owned it since the early 90's.)

Any advice on what I should be doing to prepare for this? I can't even find when the deal will close. If the closing is post December 31, I could potentially punt some of the stock this year and the rest next year. I have an over $100,000 LT capital gain on this one, so I need to plan this as best I can, especially since I already have alternative tax considerations every year.

Thanks for any guidance!

 

[target2019]

You can gift up to 14k to as many folks as you like. Please note I replied first!

Seriously, this article shows you how to avoid cap gains by donating to charity. If you did what if with last year's tax program, there may be good reason to donate some or all. Just not to me.

http://www.schwab.com/public/schwab/nn/articles/Charitable-Donations-The-Basics-of-Giving

 

[gcgang]

Gifting to a charity, where you get a tax deduction not an attaboy from those you give $14k to (who would acquire your low cost basis anyways), should be considered.

Funding a Donor advised Fund or setting yourself/spouse up with a charitable gift annuity could be evaluated.

Years ago I had a takeover where I could make the case that I was better off financially donating to a gift annuity than selling, paying the tax, and reinvesting. But our state had a special tax incentive at the time.

I've had two chip stocks, ARMH and EZCH taken over for cash, also, this year. What's going on with all these tech takeovers?

 

[marinauser]

I would expect the market to bring the price up to pretty close to the offer price pretty quickly. You don't have to wait for the actual merger and can sell half this year and then see when the close might happen. It is hard to believe that it will close this year. The press release indicates that the closing is expected in the first half of 2017. So you can spread the capital gains over two years if that helps.

 

[GrayHare]

Sounds like a good time to offset that gain by selling an asset on which you have a pending capital loss.

 

[copyright1997reloaded]

Gifting to a charity, where you get a tax deduction not an attaboy from those you give $14k to (who would acquire your low cost basis anyways), should be considered.

Funding a Donor advised Fund or setting yourself/spouse up with a charitable gift annuity could be evaluated.

Years ago I had a takeover where I could make the case that I was better off financially donating to a gift annuity than selling, paying the tax, and reinvesting. But our state had a special tax incentive at the time.

I've had two chip stocks, ARMH and EZCH taken over for cash, also, this year. What's going on with all these tech takeovers?

Thanks for the suggestions on a charity/donor advised fund/charitable gift annuity. I had thought that I had charitable deductions limited due to AMT but I must have misunderstood it (I know I've had high state income taxes limited because of it). I will definitely look into these.

Sounds like a good time to offset that gain by selling an asset on which you have a pending capital loss.

I have a bit of capital losses to offset, but not much. I typically don't let capital losses sit around too long if the reason I invested in them has fundamentally changed. But I do have some, especially in the oil/gas sectors which I will exchange out for other investments in the same sector.

 

[copyright1997reloaded]

I would expect the market to bring the price up to pretty close to the offer price pretty quickly. You don't have to wait for the actual merger and can sell half this year and then see when the close might happen. It is hard to believe that it will close this year. The press release indicates that the closing is expected in the first half of 2017. So you can spread the capital gains over two years if that helps.

This has already happened, the stock is trading above the takeover $ amount. This is mostly because Analog Devices traded UP on the announcement, so the stock portion of the deal is worth more. Thus the slight premium on the stated $60 valuation.

Thanks for letting me know this won't close until 2017, this allows me additional planning opportunities.

It's funny: Over the years I've told friends about Linear. Almost none of them had ever heard of them, and no one was really interested as it wasn't "sexy" enough. I picked up the stock way back in 1990 because I liked what they did, i.e. made a variety of premium analog devices like analog to digital converters, power supply chips, etc. (After all, we live in an analog world.) Many products, mostly low cost, proven applications (an Engineer is unlikely to jeopardize a design to save a few cents), and analog engineering is a much more unique talent than normal old EE's. Linear has one of the highest profit margins in the industry and relatively large barriers to entry due to engineering talent and that fact that these devices tend to have a longer life cycle (due to how they are engineered into products) than digital devices. I remember a press release they did one time that mentioned that there were over 900 Linear devices in the Mars Rover.

I will also miss that nice dividend flow, increased just about every year. Now to find the next one(s)!

 

[DrRoy]

You can make a one time payment of tax to the IRS to keep current.

 

[Sunset]

Nice problem to have. I wish I had that problem

I have no advice as I've been "lucky" enough to never have that issue.