Q: At the time of the transaction announcement, I had assumed the original ACB from Karora would follow, and the transaction would not be a taxable event. My concern was how would the $0.608/share be treated. I enquired, and received this passed along from their tax dept, "This was a return of capital spin-off followed by a mixed consideration third-party acquisition.It was effectively a fair market value disposition because the consideration was a mix of cash and shares. To be tax deferred in Canada it has to be shares only."
In other words, the entire transaction would be taxable this year. (The ACB on the WGX shares reflects that.)
Is this your understanding? If so, any idea why they would structure the deal this way? Doing so would seem decidedly non shareholder friendly.
Thank you for your comments. Tim
In other words, the entire transaction would be taxable this year. (The ACB on the WGX shares reflects that.)
Is this your understanding? If so, any idea why they would structure the deal this way? Doing so would seem decidedly non shareholder friendly.
Thank you for your comments. Tim
5i Research Answer:
Yes, this is our understanding. While not idea for every account, in such transactions companies try to maximize shareholder value, pre-tax. Because many investors hold shares in tax-free accounts, and more importantly large funds such as pension accounts are tax free, and mutual funds report performance number pre-tax, 'maximization' is far more important than looking at taxes to holders in such deals. We do not know the exact reasoning in this specific case, but there were most likely benefits (tax or otherwise) to WGX from the way the deal was structured.