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Author: Conehead Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 121144  
Subject: Tax Question about resolving short sales Date: 10/20/1998 10:14 PM
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I've owned some shares of HBOC since May, but I'm not a fan of the recently announced merger with McKesson (MCK). So I want to liquidate my position. However, I am convinced that the merger will be completed successfully. So I was considering the following strategy, but I don't know the tax consequences. So any insights would be helpful.

For sake of argument, lets say I own 1000 shares. (I own an odd lot, but I want to keep this simple). Each share of HBOC will be converted into .37 shares of McKesson at the merger date.

So, instead of selling my HBOC shares, I short sell 370 McKesson shares. Then on the merger date in 1999, I will receive 370 shares of McKesson which I then use to cover my short sale.

Is there a phantom transaction that takes place on the merger date which determines what capital gains are allocated to the HBOC shares and what gains are allocated to the short sale?

Or would it just be easier to make two additional trades on (or close to) the merger date so that I have two simple buy/sell transactions I can account for.

Anybody know the answer?
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