Tax implications of company spinoff activity for shareholder

Have a question about your personal investments? No matter how simple or complex, you can ask it here.
Post Reply
User avatar
Topic Author
pokebowl
Posts: 400
Joined: Sat Dec 17, 2016 7:22 pm
Location: The Orion Spur of the Milky Way galaxy.

Tax implications of company spinoff activity for shareholder

Post by pokebowl »

Hello Bogleheads. First time dealing with this topic, however one of my Vanguard accounts holds equity shares in the company Pfizer Inc. Pfizer announced this week on the completion of their transaction to spin off its Upjohn Business and combine it to form Viatris Inc.

Specifically for shareholders:
Under the terms of the transaction, which was structured as an all-stock Reverse Morris Trust, Upjohn Inc. was spun off to Pfizer stockholders by way of a pro rata distribution and immediately thereafter combined with Mylan. The combined company was renamed “Viatris” in connection with the closing. In the distribution, Pfizer stockholders received approximately 0.124079 shares of Viatris common stock for every one share of Pfizer common stock held as of the close of business on the record date (which was November 13, 2020). In addition to the Viatris shares received in the distribution, Pfizer stockholders retained as of the closing the same number of shares of Pfizer common stock as they held immediately prior to the transaction. As of the closing of the combination, Pfizer stockholders owned approximately 57% of the outstanding shares of Viatris common stock, and Mylan shareholders owned approximately 43% of the outstanding shares of Viatris common stock, in each case on a fully diluted, as-converted and as-exercised basis.

Viatris (Nasdaq: VTRS) will begin trading tomorrow, November 17, 2020.
My question is thus, I now see this Viatris company listed under my Vanguard portfolio and the transaction is listed as "corp action", however its cost basis mirrors the cost basis of my original Pfizer shares (Long term shares) as well as the Pfizer share price/gains at time of purchase years ago. I have not lost any Pfizer share holdings with this activity. Am I correct to assume, regardless of the cost basis Vanguard is indicating, these new shares into Viatris will be treated as distributed income and I should account for it as such? I haven't found much discussion on this type of corporate activity when it relates to taxes for shareholders. Or should I account for something else entirely?
User avatar
HueyLD
Posts: 7812
Joined: Mon Jan 14, 2008 10:30 am

Re: Tax implications of company spinoff activity for shareholder

Post by HueyLD »

Here is the meat of the merger, including federal income tax consequences starting on page 114.

Your brokerage should know how to allocate the basis to the new company and Pfizer basis should be reduced accordingly. Cash in lieu of fractional shares will be taxable. When my stocks (not Pfizer) had such activities, my brokerage provided every bit of information correctly without my having to look up anything. Ask Vanguard to provide you with appropriate information because it is their job.

Happy reading. https://s21.q4cdn.com/317678438/files/d ... tement.pdf
User avatar
Topic Author
pokebowl
Posts: 400
Joined: Sat Dec 17, 2016 7:22 pm
Location: The Orion Spur of the Milky Way galaxy.

Re: Tax implications of company spinoff activity for shareholder

Post by pokebowl »

HueyLD wrote: Fri Nov 20, 2020 11:56 pm Here is the meat of the merger, including federal income tax consequences starting on page 114.

Your brokerage should know how to allocate the basis to the new company and Pfizer basis should be reduced accordingly. Cash in lieu of fractional shares will be taxable. When my stocks (not Pfizer) had such activities, my brokerage provided every bit of information correctly without my having to look up anything. Ask Vanguard to provide you with appropriate information because it is their job.

Happy reading. https://s21.q4cdn.com/317678438/files/d ... tement.pdf
That really is some light reading. Thanks for the response and the resource link, I'll look through the document and then contact Vanguard. :beer
BluesH
Posts: 94
Joined: Mon Nov 19, 2018 1:31 pm

Re: Tax implications of company spinoff activity for shareholder

Post by BluesH »

I'm very curious how VG calculated those amounts. In my taxable Fidelity account, they show my basis in Pfizer going down by $1.72 per share (in my case, from $33.08 to $31.36. They also show my basis in VTRS to be $14.22 per share.

This seems like a plausible set of numbers for a spinoff of 0.124079 shares per share. The small difference (between 0.124079*14.22 and 1.72) is likely due to the dollars credited for a fractional share.

Bob
Post Reply