Gifts of appreciated stock when merger, negotiated sale or other corporate acquisition is in play

Corporate mergers and acquisitions take place many times each year. These are often great for shareholders in terms of additional gain, but may also produce unwanted taxes. If a donor owns appreciated stock in a company that is subject to a takeover, merger, tender offer, negotiated sale or other acquisition, can the stock still be donated to charity (Duke) and capital gains tax avoided? 

In most cases, the answer is “YES” unless the transaction is a “done deal” (which means over 50% of the shares have been tendered, or all approvals by shareholders or authorities have approved, or sale documents are final).

Here’s an example to illustrate my point:

Piedmont Natural Gas (stock symbol: PNY) is being acquired by Duke Energy for $60 / share IF (1) public service authorities in North Carolina, South Carolina and Tennessee, and (2) PNY shareholders, approve the transaction.  PNY shares have appreciated substantially in value in recent years and appreciated an additional 40% on October 26, 2015, the date this acquisition was publicly announced.

The good news is that the final closing date will not take place until late 2016 so this is not a “done deal”… thus donors can STILL contribute PNY stock to Duke and avoid tax on their capital gains. The stock is currently trading at the $60 acquisition price projected for closing in a year so there appears to be no more gain to capture. While approval by public service authorities and shareholders appears likely, it is NOT certain, and “a bird in hand is worth two in the bush” for charitable gift donors. We have seen deals fall apart when unforeseen events occur.

Gift opportunity

PNY is the type of “highly appreciated stock” we often cite as an ideal asset to use to make charitable gifts to Duke University because the donor can avoid tax on his or her capital gain in the stock. Capital gain taxes apply to the difference in value between what the donor paid for the stock (or value when inherited) and the stock’s value on the date of sale (or charitable gift). 

There are two ways a donor can make a gift of appreciated stock:

  1. Through an outright charitable gift to Duke (e.g. to fund a scholarship endowment in his or her name). The donor will receive a full deduction for the stock’s market value, and never have to pay capital gains tax.  

  2. By establishing a “life income gift” such as a charitable gift annuity or a charitable remainder unitrust. Both provide a donor with a current income tax deduction and payments (either fixed or variable). You may learn more about life income gifts by visiting our website.

If a donor does nothing then, on the closing date, the PNY stock will be cashed out and the donor will be taxed on his or her capital gain.  You snooze, you lose!  At that point in time, PNY will no longer be a publicly traded stock and cannot be donated. It will be but a fond memory.

If you would like to learn more about gifts of time sensitive appreciated stock, please contact a member of our charitable giving team.

TAGS: life income gifts gifts of securities gifts in kind

About the author

Gift Planning

giftplanning@duke.edu

Duke University’s Office of Gift Planning specializes in charitable gift planning for estates, charitable trusts and annuities, and other complex current and future gift plans.

For more information, please contact the Duke University Office of Gift Planning at 919-681-0464 or giftplanning@duke.edu.