How do I determine what the cost basis is each of the CVRs?

[tngo000]

I received cash for the Safeway shares i purchased as a result of the merge with Albertsons.   SWY shareholders also received two CVRs.  There is no Cost Basis on 1099-B for the CVRs.   The stocks were purchased through ESPP from 1998 - 2014.  How do I determine  what the cost basis is for each of the CVRs?

[maglib · Accepted solution]

@tngo000

For the ESPP your basis in your original safeway shares is the amount you paid to receive the stock (can be nothing if the employer contributed) plus any W-2 compensation income recognized for the acquiring or the sale of the stock. Often your employer can help you with this if you don't have records.

Now you have to take the total consideration you received from the merger (see next paragraph).  You take the CVR's FMV  divided by the total FMV of the consideration received and multiply that by your original cost basis to allocate basis to the CVR's, you should keep track of this by lots.

Safeway shareholders will receive $34.92 per share in cash, consisting of (i) $32.50 in initial cash consideration, (ii) $2.412 in consideration relating to the previously announced sale of the assets of Safeway's real-estate development subsidiary Property Development Centers, LLC ("PDC") and (iii) $0.008 in consideration relating to a dividend of approximately $2 million (after deduction for taxes at an assumed rate) that Safeway received in December 2014 on its 49% interest in Mexico-based food and general merchandise retailer Casa Ley, S.A. de C.V. ("Casa Ley"). In addition, shareholders will receive contingent value rights entitling them to pro rata proceeds relating to deferred consideration from the sale of PDC and any proceeds from the sale of Safeway's 49% interest in Casa Ley. Both contingent value rights will be non-transferable and non-tradable. For tax reporting purposes, Safeway intends to report that the fair market values of the contingent value rights at the time of the merger for PDC and Casa Ley are $0.0488 and $1.0149, respectively, per share, based on third party valuations. With respect to PDC, both the initial cash distribution ($2.412 per share) and the total estimated asset value including the CVR ($2.461 per share) have increased slightly over the estimated values set forth in Safeway's December 23, 2014 press release announcing the sale of PDC. Those earlier estimates were $2.38 per share and $2.45 per share, respectively. In addition, in April 2014, Safeway stockholders received a distribution of stock in Safeway's former Blackhawk Network Holdings, Inc. (NASDAQ: HAWKB) subsidiary valued at approximately $4.02 per Safeway share at the time of the distribution.

http://investor.safeway.com/phoenix.zhtml?c=64607&p=irol-irhome for complete details about the merger.

[austinwflowers]

What is the total FMV for Casa Ley? I looked up the final trading price and it was $3.83 on 5/9/2014. Is that the price I should use when calculating the cost Basis?  Am I correct in saying the FMV for PDC was $2.461 when calculating the cost basis?

Thank You in advance.

[maglib]

Safeway intends to report that the fair market values of the contingent value rights at the time of the merger for PDC and Casa Ley are $0.0488 and $1.0149, respectively, per share, based on third party valuations.  That is all that was reported.. These were not trading securities so I'd use these valuations.