I have compiled a list of companies that demutualized more than 20 years ago, during the last century. It’s hard to believe, but I feel old typing this because I received an allotment of AMP shares at that time. Since I first added this information to my website in 2008, a lot has changed, and it definitely needs an update.
Since 2008, there have been demergers, takeovers, and capital returns that have diluted the original issue price of the share. All calculations in this post will assume that you received 1000 shares at the time of demutualisation and sold the appropriate number of shares as of February 2023.
Scrip for Scrip Rollover
If your shares are part of a merger, a capital gain event occurs. However, if you choose a scrip for scrip rollover, that event is postponed until you sell the new shares. If you do a partial rollover or don’t do a rollover, a capital gain calculation would have taken place at the time of the merger. For all subsequent calculations, I will assume that a full scrip for scrip option was chosen.
Dividend Reinvestment Plan (DRP)
A dividend reinvestment plan (DRP) is a program offered by some companies that allow shareholders to automatically reinvest some or all of their dividends into additional shares in the company, rather than receiving cash payments. For all subsequent calculations, I will assume that a DRP was not in place.
What is Demutualisation?
Demutualisation is the process by which a mutual organisation, such as a mutual insurance company or a mutual savings bank, converts itself into a publicly traded company. This typically involves issuing shares to the members of the mutual organisation and listing them on a stock exchange. Demutualisation can provide the organisation with greater access to capital and may also result in increased transparency and accountability. However, it may also result in a loss of control by members and a shift in focus towards shareholder value rather than member service.
Market Values
As of February 25th, 2023, the market value for AMP is $1.08, for IAG it is $4.77, and for CBA it is $101.22. All calculations will exclude any broker fees for selling shares.
National Mutual/AXA
When National Mutual demutualised, the cost base of their shares was $1.14 on October 3rd, 1996. When AMP and AXA merged on March 30th, 2011, the market value of the new AMP share was $5.32. The capital proceeds for each AXA share are $3.8836 (0.73 multiplied by $5.32, the market value of an AMP share on March 30th, 2011) plus $2.5464 cash. Please refer to the ATO fact sheet [1] for more information.
Example: At the time of demutualisation, you received 1000 shares at $1.14. In March 2011, those shares became 730 AMP shares valued at $3883. If sold today, the value of the shares would be 730 shares at $1.08, totalling $788. The sale price of $788 less the cost base of $3883 would result in a capital loss of $3094. This loss can only be used to offset capital gains in the current year and, if no gains in the current year, future gains.
AMP
The shares that were issued during AMP’s demutualisation on January 1, 1998, had an original cost base of $10.43. However, in 2003, AMP demerged into two separate companies, with the second one being Hendersons. Additionally, in the years 2005, 2006, and 2007, AMP issued capital returns of 40 cents each year. As a result of both the demerger and the capital returns, the cost base of the shares is now $6.19. [2]
Example: At the time of demutualisation, you received 1000 shares, and the cost base had been reduced to $1.585 from $1.78, as mentioned above. If sold today, the value of the shares would be 1000 shares at $1.585, totalling $1585. The sale price of $4770 less the cost base of $1585 would result in a capital gain of $3185. As the shares have been held for over 12 months, a discount of 50% is applied to the gain. The taxable component of the gain would be $1592.50, which can be offset against any capital losses or included in your assessable income.
Colonial Mutual
On May 19, 1997, Colonial Mutual demutualised, and the cost base of the shares was $3.31. In 2000, Colonial became a part of the Commonwealth Bank Group, and for every 20 Colonial Mutual shares owned, 7 CBA shares were issued.
Example: Suppose you received 1000 shares at the time of demutualisation. In that case, the cost base of the shares would be $3310. When CBA took over the shares, you received 7 shares for every 20 Colonial Mutual shares owned, resulting in 350 CBA shares. If you sold these shares today, the value of the Colonial Mutual shares would be $3.31 per share, totalling $3310. The value of the CBA shares would be 350 shares at $101.22, equaling $35,427. The capital gain would be $32,117, calculated as the sale price ($35,427) minus the cost base ($3310). As the shares have been held for over 12 months, a discount of 50% is applied to the gain, resulting in a taxable component of the gain of $16,085.
NRMA
On August 8th, 2000, NRMA underwent demutualisation and became the NRMA Insurance Group Limited. The shares allocated at the time had an original cost base of $1.78. Two years later, in 2002, NRMA Insurance Group Limited changed its name to Insurance Australia Group Limited (IAG).
Then, on October 26th, 2018, IAG shareholders approved a capital management initiative, resulting in a return of capital of 19.5 cents. This move reduced the original cost base from $1.78 to $1.585.
Example: Suppose you received 1000 shares at the time of demutualisation, and the cost base had been reduced to $1.585 from $1.78, as mentioned above. If you were to sell the shares today, the value would be 1000 shares at $1.585, totalling $1585. If the sale price were $4770, subtracting the cost base of $1585 would result in a capital gain of $3185. Since the shares have been held for over 12 months, a discount of 50% is applied to the gain, making the taxable component of the gain $1592.
Disclaimer
Overall, it’s important to note that this information is for general guidance only, and you should seek professional advice before making any investment or tax-related decisions. Additionally, the calculations provided here assume certain conditions and are based on market values at a specific point in time. Therefore, it’s important to update your calculations regularly based on current market values and any changes in the company’s structure or policies.
Appendix
[1] https://www.ato.gov.au/Individuals/Ind/Events-affecting-shareholders/Merger-of-AMP-Limited-(AMP)-and-AXA-Asia-Pacific-Holdings-(AXA)-fact-sheet/?page=1 [2] https://corporate.amp.com.au/shareholder-centre/shareholder-info/tax-information#:~:text=Shares%20issued%20at%20AMP's%20demutualisation,2005%2C%202006%2C%202007) [3] https://www.iag.com.au/sites/default/files/Images/Shareholder%20centre/DOC_ATO_Tax_Information_March_2001_200103.pdf [4] Page 65 of the 2000 Annual Report: http://www.commbank.com.au/about-us/shareholders/pdfs/annual-reports/2000_Annual_report_financial_statements_1MB.pdf