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HPE Micro Focus ("Seattle SpinCo") Spinoff - Summary
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Summary (Updated Mar 31, 2022.)
On Sep 9, 2017, HPE Software was spun out and merged with the UK company Micro Focus in a deal valued at $8.8 billion. News Article
The software businesses sold included big-data, security, and IT management products from companies that HP had bought -- such as ArcSight, Atalla, Autonomy, Interwoven, Mercury Interactive, OpenView, Peregrine, and Vertica.
If you owned HPE stock on Sep 1, 2017, you automatically received "Seattle SpinCo" stock -- which was immediately merged into Micro Focus.
Each share of HPE spun off 1 share of a temporary company, "Seattle SpinCo." Then, each share of SpinCo became 0.137 share of Micro Focus.
Complication #1 -- American Depository Shares.
- US HPE shareholders received American Depositary Shares, traded on the NYSE as "MFGP." An ADS is an equity share of a foreign company traded in dollars on an American stock exchange. (Details: Investopedia Definition of ADS and ADR Micro Focus ADR information Micro Focus Stock Listings )
The ADSs are administered by Deutsche Bank Trust Company and American Stock Transfer & Trust Company (AST), both incorporated in New York. MFGP is not a foreign stock -- the ADSs keep it domestic. AST transaction fee schedule
- Non-US HPE shareholders presumably received shares in Micro Focus via a mechanism similar to how their HP and HPE shares are administered and traded.
Complication #2 -- Corporate Inversion.
Whether this was one of HPE's original intentions or not, HPE's outside tax counsel advised that the transfer of HPE's software business to the UK-based Micro Focus would be penalized by the US Government as a "corporate inversion" -- a process by which companies move their legal home overseas to reduce their US tax bill. Details: hpalumni.org/StockMFGPDetails
In the opinion of HPE's outside tax counsel, the transfer of HPE's US-centric software business to the UK-based Micro Focus should be treated as a "corporate inversion" -- a process by which companies move their legal home overseas to reduce their US tax bill -- and was therefore taxable to shareholders. HPE included that information in an SEC filing. HPE's "Dear Shareholder" Cost Basis letter,
Members report that brokerages, plan administrators, and transfer agents vary (sometimes dramatically) in how (or if) they make gain/loss and cost basis calculations and in what (if anything) they report to the IRS. As of Mar 2023, no member has reported -- privately or on the HPAA forums -- that their return has been questioned by the IRS due to how they reported the many extremely complex HP-related stock transactions.
Members have reported variations between Fidelity, Morgan Stanley, Merrill Lynch, Schwab, TDAmeritrade, and Vanguard
If you paid tax on the 2017 transaction, the cost basis for your MFGP stock should be reset to approx. $29.34/share, instead of being linked to the cost basis of your HPE stock. Be sure you note this in your own records (and in your broker's records, if your broker tracks cost basis) -- so that you don't pay tax twice on the same gain.
Issues were reported by members with specific plan administrators and brokerages: Merrill Lynch issues Morgan Stanley issues Fidelity stock issues
As of Mar 2023, no member has reported -- privately or on the HPAA forums -- that their return has been questioned by the IRS due to how they reported the 2017 Micro Focus spinoff.
If interested in the background details: HPE Micro Focus Spinoff - Details
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