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Why did Peabody spin off its West Virginia and Kentucky coal operations?
We believe the spin-off unlocked long-term value for shareholders, who retained ownership in the world's largest private-sector coal company and also had ownership in a leading Eastern U.S. producer with a major metallurgical and steam coal position. With the spin-off, both companies are able to pursue their distinct growth plans and business focus.
What can you tell me about the Patriot Coal spin-off?
On April 19, 2007, Peabody announced the initiation of a strategic review of West Virginia and Kentucky coal operations. The expected result was a spin-off or other transaction involving these assets to enhance long-term shareholder value. Securities and Exchange Commission (SEC) filings were made as part of a potential spin-off of these assets into a new company, Patriot Coal Corporation. On October 10, 2007, Peabody's Board of Directors approved the spin-off of Patriot Coal Corporation via a stock dividend to Peabody shareholders and on October 15, 2007 Patriot Coal's registration statement was declared effective by the SEC. Patriot Coal became its own company and began trading on the NYSE under the symbol "PCX" on November 1.
What did Peabody's shareholders receive as a result of the spin-off of Patriot Coal?
Holders of Peabody stock received one share of Patriot Coal Corporation for every 10 shares of Peabody that they owned. The Patriot Coal Corporation shares were distributed after the close of business on October 31, 2007.
Where are Patriot Coal Corporation shares traded and what is its ticker symbol?
Patriot Coal Corporation is traded on the New York Stock Exchange (NYSE) under the ticker symbol "PCX".
What was the dollar value of the spin-off? How was the value calculated?
The value of Patriot Coal shares was determined by trading activity on the NYSE.
What was the record date for the spin-off?
The record date was October 22, 2007, with ownership determined as of 5:00 p.m. Eastern Time on that date.
When were the shares of Patriot Coal distributed?
Shares of Patriot Coal Corporation (NYSE: PCX) were distributed to Peabody shareholders after the close of business on October 31, 2007, the distribution date.
What happened if I owned shares of Peabody on the record date but sold my shares prior to the distribution date?
To qualify for the benefits of the stock dividend distribution of Patriot Coal shares, you must have owned your shares on the distribution date, October 31, 2007.
Was it possible to effectively trade Peabody or Patriot Coal on a post-spin basis before the spin-off?
The NYSE authorized a "when issued" market for both Peabody and Patriot Coal under the symbols "BTU wi" and "PCX wi", respectively, which began October 18, 2007. Trading in the "when issued" market allowed investors to initiate post-spin trades in either Peabody or Patriot Coal, prior to the actual spin-off occurring. The trades were conditional on the spin's planned completion on October 31, 2007. BTU wi shares were not entitled to the benefits of the Patriot Coal distribution.
Were there any transition agreements between Peabody and Patriot Coal?
There were a number of transition services between Peabody and Patriot Coal. Additional details regarding these services can be found in Patriot Coal's registration statement filed on Form 10 with the SEC.
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Why was this called a tax-free spin-off, and what are the tax consequences to Peabody shareholders?
Peabody received a favorable ruling from the IRS and a favorable opinion from the company's auditor, Ernst & Young LLP, confirming the spin-off's tax-free status. Any cash received in lieu of fractional shares was taxable.
As a result of the spin-off, how do I calculate the tax basis of my Peabody and Patriot Coal stock?
There are multiple ways to allocate your tax basis between your Peabody shares and your new Patriot shares. One such method is to determine the tax basis based on the fair value of both Peabody and Patriot stock as of the open of trading on November 1, 2007, the first day of "regular" way trading for Patriot. Using this basis and the ten Peabody shares to one Patriot distribution ratio, Peabody believes that 93.72% of your pre-distribution Federal income tax basis in your Peabody common stock would be allocated to your Peabody common stock and that 6.28% of such basis would be allocated to your Patriot common stock. For example, assume you originally purchased 1,000 shares of Peabody at $25.00 per share for $25,000 total.
How was the Patriot spin-off treated for Canadian tax purposes?
The Canadian Revenue Agency ruled that the Patriot spin-off qualifies for tax deferral treatment under section 86.1(2)(e) of the Canada Income Tax Act.
Canadian resident shareholders of Peabody Energy stock can elect to defer taxation on the Patriot shares until sold rather than being taxed as a foreign dividend in the year of spin. The election can be made by including a letter with their 2007 income tax return (electronic filing cannot be used for such year).
The letter must contain the following information:
- written notification that the shareholder is electing to defer taxation on the Patriot shares (including a description of both the Peabody and Patriot shares);
- the number of shares, cost basis, and fair market value of the Peabody shares immediately before and after the distribution;
- and the number and fair market value of the Patriot shares immediately after distribution.
If the election is made, the adjusted cost basis of the Patriot shares will be determined by allocating a portion of the cost basis from the Peabody Energy shares to the Patriot shares. Examples for computing the adjusted cost basis of the Patriot shares as well as the notice of qualification for section 86.1 treatment can be found on the Canada Revenue Agency website under "foreign spin-offs" at www.cra-arc.gc.ca/tx/bsnss/tpcs/frgn-eng.html.
Was the Patriot Coal spin-off tax free for foreign shareholders?
Certain non-U.S. jurisdictions may choose to subject this type of corporate reorganization to taxation even though the distribution of Patriot Coal common shares is not taxable under U.S. Federal law. You should consult your own tax advisor regarding the particular consequences of the spin-off to you, including the applicability and effect of any U.S. federal, state, local and foreign tax laws.
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Patriot Spin-off FAQs
