Per Merck's website, the cost basis SGP shareholders are to use for purposes of calculating gain/loss on the $10.50 cash distribution is 42.33% of your basis in the SGP shares. For example, if you had purchased SGP shares at $10 per share, you would have a basis of $4.23 relative to the cash disbursement and therefore a recognized gain of $6.27 per share ($10.50 less $4.23). I had a hard time understanding how this percentage could be correct since $10.50 is 42.33% of either the 11/3 closing price of MRK or SGP. Here's how to make sense of it:

Closing price of SGP on 11/3 = $28.15
Closing price of MRK on 11/3 = $30.67

(A) In trade for 42.33% of each SGP share you were given $10.50 in cash
(B) In trade for 57.67% of each SGP share you were given 57.67% of a MRK share
(C) The total proceeds from these two portions of the transaction amount to a value very slightly higher than the value of the SGP stock as of EOB on 11/3/2009

The (A) portion of the deal represents a loss when viewed in isolation based on the 11/3 closing price: $28.15 * .4233 = $11.92. That value was traded for $10.50 which is a loss of $1.42 per share.

The (B) portion of the deal represents a gain when viewed in isolation based on the 11/3 closing price: $28.15 * .5767 = $16.23. That value was traded for .5767 of a MRK share which was worth $17.68. (.5767 * 30.67 = $17.68). This is a gain of $1.45 per share.

When the two portions of the transaction are combined, there is a gain of three cents per share: -$1.42 + $1.45 = $0.03

The result of having a loss on the cash portion recovered via a gain on the stock portion creates a bigger tax hit now than if the deal were structured so that each component was a wash, but that’s just the way it is