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# Possible Tax Consequences For The Acquisition Of Level 3 Communications By CenturyLink These examples assume the stock portion of the deal is greater than 50% of the total value and the tax authority is the USA.

We'll use a round number that produces a fractional share for this example. Our fictional investor owns 1000 shares of Level 3 Communications (LVLT) with a basis cost of \$40.00 per share (qualifying for long term capital gains) for a total cost of \$40,000.00. LVLT is bought by Centurylink (CTL) for 1.4286 shares of CTL plus \$26.5 per share in cash.

Let’s say the closing market value of CTL is \$25.00 per share on the last trading day prior to the merger (late next year). You also received \$15.00 "cash in lieu" for fractional shares of LVLT.

What is your cost basis for CTL? First we calculate the total value received:

1000 shares of LVLT receives 1.4286 shares of CTL per share, for a total of 1428.6 shares of CTL. We’ll assume for this example the closing value of CTL was \$25.00 per share; a value of \$35,715.00 for the stock portion. You also received \$26.50 cash for a total cash portion of \$26,500.00. Therefore, the total value you received for both cash and stock is \$62,215.00.

Your total gain is \$22,215, the total value received; \$62,215.00 less the original cost of your shares of LVLT or \$40,000.00. The shareholder will recognize as gain the lesser of the gain realized or the cash received. Capital gains for this case is \$22,215.00. The difference from the cash received is \$4,285.00 so your adjusted basis cost is \$40,000 minus \$4,285 minus \$15 (fractional share) or \$35,700.00.

What if your cost basis was \$30,000 putting your gain at \$32,215.00. Now your capital gain is the cash portion or \$26,500 and your cost basis for the new shares remain at \$30,000.

I ran these examples based on this Calculator.

I am not an accountant so talk to a CPA to verify these methods are acceptable to the IRS.

Have a different opinion? Let me know at iiex@live.com 