Effective 23 December 2009, Ensco’s parent company changed its legal domicile from Delaware, U.S.A. to the United Kingdom (UK) through a merger transaction. Due to the change, the parent company changed from ENSCO International Incorporated (Ensco Delaware) to Ensco plc (formerly known as Ensco International plc) in a transaction whereby the Ensco Delaware shareholders exchanged their shares for ADSs in Ensco plc.
Is the change in domicile to London a taxable event to U.S. shareholders, and if so, what is the fair market value?
Generally, for U.S. federal income tax purposes, a U.S. holder should recognize gain, but not loss, on the receipt of American Depositary Shares (ADSs) in exchange for Ensco Delaware common stock. You should generally recognize gain equal to the excess of the fair market value of the ADSs received in the merger over your adjusted tax basis in the shares of Ensco Delaware stock exchanged. U.S. holders are not permitted to recognize any loss realized on the exchange of their shares in the merger. If the exchange of your Ensco Delaware shares involves shares on which gains are realized and other shares on which losses are realized, you may not net the losses against the gains to determine the amount of gain recognized.
Please note that you should consider prior stock splits in the calculation of your adjusted tax basis, if applicable.
In the case of a loss, the adjusted tax basis in each ADS received by a U.S. holder should equal the adjusted tax basis of each share of Ensco Delaware common stock exchanged therefor. For shares upon which a taxable gain is recognized as of December 23, 2009 due to the exchange, your new basis in the ADSs received is the fair market value on the effective date of the merger. The fair market value of each ADS received by an Ensco Delaware shareholder pursuant to the merger is $42.18, determined by the average of the low ($41.75) and high (42.60) selling prices of an ADS on December 23, 2009.
The holding period for any ADSs received will include the holding period of the Ensco Delaware shares exchanged, i.e. the original purchase date of your Ensco common stock will dictate the holding period for any future sales of your ADSs.
Note for future tax purposes: the fair market value of $42.18 will become the new cost basis for an ADS that was received in exchange for a share of Ensco Delaware common stock upon which gain was recognized, and the determination of short/long term gain on the future sale of an ADS will be based on the original purchase date of the share of Ensco Delaware common stock exchanged for such ADS.
Please seek advice from your tax advisor.