What are the potential tax implications for shareholders choosing cash versus WES units, and how might that affect shareholder preference?

Tax considerations

• Cash payout ($25 per ARIS share) is treated as a short‑term capital‑gain (or ordinary‑income) event in the year the merger closes. For most retail investors the $25 is taxed at the ordinary‑income rate (up to 37 % federal + state tax), and the cash is immediately taxable. If an investor holds ARIS shares at a loss, the cash proceeds can be used to offset those losses, but the net effect is a tax‑drag on the total return. The cash option therefore offers immediate liquidity but can shrink net proceeds by 20‑30 % for many taxpayers.

• WES units (0.625 WES common units per ARIS share) are treated as stock‑for‑stock exchanges. Under IRS § 355 the exchange is generally tax‑free (no gain recognized) until the shareholder later sells the WES units. At that later sale the shareholder will incur a capital‑gain (or loss) based on the fair‑market value of the units on the transaction date (the “basis” is the $25 cash equivalent). If the shareholder holds the units for more than a year, the gain will be taxed at long‑term capital‑gain rates (0‑20 % plus 3.8 % net‑investment‑income tax), which is typically lower than ordinary income. Moreover, investors can defer any tax until they actually dispose of the WES units, preserving cash for reinvestment.

Impact on shareholder preference and trade outlook

Because the cash option triggers immediate ordinary‑income tax, many high‑tax‑bracket shareholders (e.g., institutional investors, high‑income individuals, and tax‑sensitive retirees) tend to favor the WES unit election to defer tax and potentially capture a lower long‑term capital‑gain rate. Retail investors who need cash now, have sufficient tax‑loss carryovers, or are risk‑averse may still elect cash despite the higher tax bite, especially if they doubt the upside of the WES business (mid‑stream pipeline exposure). The market’s reaction—currently a 60‑point sentiment downside—suggests investors are wary of the price‑process scrutiny; this adds a “risk premium” to the WES units.

Trading implication: If the majority of shareholders elect the tax‑efficient WES units, the effective purchase price of the WES shares will be effectively higher (because cash is “discounted” by tax), supporting a support level around the implied WES valuation (≈ $40‑$45 per unit). Traders should watch the share‑for‑unit exchange ratio and any tax‑policy announcements; a tilt toward cash could create short‑term selling pressure in ARIS (as cash‑seeking holders liquidate) while boosting demand for WES units. A short‑term sell‑the‑news bias may be present, but positioning a long‑only or delta‑neutral spread—short ARIS, long WES‑related ETFs (e.g., USO‑type pipeline plays) – could capture the differential while the tax‑driven preference plays out.