Friday, October 15, 2010

Update on Verizon Frontier Spin Off

A few months ago, I wrote a post about how Verizon Communications (NYSE: VZ) shareholders received shares in Frontier Communications (NYSE: FTR) as the result of a spinoff from Verizon. My post described how to calculate the cost basis of an investment after a spin-off. As I mentioned in my post, I had a few question about the spin off and contacted Verizon investor relations about these questions.

Verizon's investor relations website provided a document that explains most of the mechanics of the spin off. One of the items that I had a question about is how that document arrived at the "opening trade" price of Verizon (VZ) on July 2, 2010 (date of the spin off). They listed the value as $27.05 per share of Verizon. I checked a couple of data sources (i.e., Google and Yahoo Finance) that list the opening price as $27.17 on July 2. However, I also subscribe to a third-party data service that lists the opening price as $27.05, which was the same value used in Verizon's calculations. So, I asked Verizon to explain the reason for this discrepancy.

Verizon's response was that the $27.05 price is the "NYSE open" as compared to the "consolidated open." Well, I'm still not 100% clear on this issue. But I gather that the $27.17 price is the "consolidated open" price. Can anybody shed additional light on this topic?

One of the commentators on my original post asked about previous spinoffs from Verizon. I responded that my post only covered the most recent spin-off of Frontier from Verizon. As you may know, Verizon has had a long history of spin-offs and mergers: the original divestiture of AT&T to form Bell Atlantic, the merger with GTE, the spin-offs of Idearc, FairPoint, and finally Frontier. And, I didn't even mention NYNEX, Contel, and MCI... All this data gives me a headache. So for more information about previous mergers and spin-offs involving Verizon Communications you can look here:

Lastly, I mentioned that a small portion of the Frontier cost basis may be paid out as "cash in lieu" (CIL) of fractional shares. For me this worked out to only $0.06 (6 cents) of cash-in-lieu. Theoretically this amount is considered income, and from the IRS standpoint tax needs to be paid on it. This transaction should be accounted for in the cost basis of the Frontier shares: The tax basis for Frontier is decreased by the amount of CIL received. I personally use Microsoft Money, financial management software, to track my investments. In the program, this transaction is allocated as a "Return of Capital"  for Frontier of $0.06. I am not certain how to enter the equivalent transaction in Quicken, but I would guess that a similar entry can be made.

So, is everything as clear as mud now?

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1 comment:

  1. does anyone know the price that Frontier was spunoff at in 2009?