Here is the description of the deal.

Under the terms of the agreement, each share of Guidant common stock will be exchanged for $30.40 in cash and $45.60 in Johnson & Johnson common stock, provided the average Johnson & Johnson common stock price is between $55.45 and $67.09 during the 15-day trading period ending three days prior to the transaction closing. Each Guidant share exchanged would be converted into Johnson & Johnson common stock of not more than .8224 and not less than .6797 shares, plus $30.40 in cash.

To simplify, assume I have shares of GDT holding more than 1 year, with cost basis at $50 per share, and assume deal will go through at $30.40 cash + .7 share JNJ @65 per each share, i.e. within the specified collar.

1) How $30.40 will be treated for tax purpose? If it needs to be taxed, how is cost basis be calculated? Should it be proportionally derived from original cost basis, i.e. 50 * 30.40/76?

2) What is the cost basis for JNJ shares obtained through transaction? Is it 50* 45.60/76?

Thanks,

Bin