Phoenix Group

[Dod101]

Some of us hold this zombie insurer and may be interested in the other side of the proposed SLA transaction.

This is a big transaction for Phoenix and seems to been kept well under wraps. It involves Phoenix taking the remaining Standard Life life business, folding it in to their own business and paying for it largely with a rights issue and a 19.99% stake in Phoenix to SLA.

They will thus have a big presence in Edinburgh (the old SL HQ). I see a substantial execution risk in all this but let's hope it all works out for Phoenix. I wonder what the other zombie insurer Chesnara thinks about it?

Full details on the Phoenix website.

Dod

[monabri]

Chesnara ..down 4.1%

PHNX up nearly 7%

[johnw11]

Only this week have I started to consider making Phoenix my next purchase.

The yield at 6.66% was looking a bit on the highside, but cash generation looked good, which seems to be the result of this type of business.

Time to start rerunning all the figures again and thinking about the impact of this on the company.

John

[Dod101]

I agree on the face of it a yield of 6.66% would seem too high but the shares are one of those for which I would make an exception. I guess the high yield is because much of the market does not really understand the business and it is perceived by many as low growth (in fact you could almost say dying because they are basically running off old portfolios) It throws off lovely cash though straight to shareholders. The only concern I have of this deal is the execution risk as it is quite big for Phoenix. I cannot see SLA wanting to keep their 19.99% as a forever holding but I expect there will be the usual 'lock in' for a few years to prevent an overhang of shares.

I have held this and Chesnara for some years.

Dod

[vrdiver]

The SLA transaction looks like it needs £950m via a rights issue*, so with 393,233,876 ordinary shares** in circulation, that suggests approximately £2.42 new cash per share.

Timescale* suggested for the rights issue is voting in early May and launch of issue in mid-May.

For holders thinking of participating, you may want to a) double-check my line-of-thought and b) plan to have £2.42 per current PHNX share ready and waiting, in whichever account you hold them (I'm going with £2.45 per share, as I don't know whether the £950m includes costs. £2.50 per share might also be reasonable given the roughness of the calculation!)

VRD


*http://www.thephoenixgroup.com/investor-relations/proposed-acquisition-of-standard-life-assurance.aspx
**https://uk.webfg.com/news/Holding-s-in-Company/Total-Voting-Rights--dl27001863.html

[Dod101]

The announcement from Phoenix says they will have a rights issue to raise £950 million but why on earth would they make the issue at only £2.42 per share considering that today they are quoted at £8? This is not a distress rights issue; rather the opposite.

I prefer to let things work themselves out and see what the details say at a later date. I may or may not take up my rights but more likely just tail swallow as I often do in these situations.

Incidentally I see that there is a 12 month lock up period for SLA for its new shareholding.

Dod

[vrdiver]

The announcement from Phoenix says they will have a rights issue to raise £950 million but why on earth would they make the issue at only £2.42 per share considering that today they are quoted at £8? This is not a distress rights issue; rather the opposite.

I prefer to let things work themselves out and see what the details say at a later date. I may or may not take up my rights but more likely just tail swallow as I often do in these situations.

Incidentally I see that there is a 12 month lock up period for SLA for its new shareholding.

Dod

Dod,
£2.42 is what they need to RAISE per existing share, not the price of the new share issue!

I have no idea what discount they will offer to incentivise us, but e.g. a rights issue that looked like "get 1 new share for every 3 you hold, with a cost of £7.26" would raise £951m. The new total shares would be 524 million, with a capital of (£3.145+0.95=£4.095billion) or £7.81 per new share, offering a discount of 7.26/7.91 or approx 8% after dilution.

The discount is important for deciding if the offer is worth taking up, but whatever the discount, they need £950m from 393m shares, or £2,42 per existing share.

The reason I wanted to figure it out is that PHNX is under a full holding (in my HYP) and would be worth topping up (if the discount was interesting) so I wanted o see how much cash such a top-up would need.

[Dod101]

OK. Asyou can see I did wonder. Fundamentally though I do not really mind because every time there is a Rights Issue, the same discussion ensues. Is it beneficial to be offered a 'deeply discounted' issue or not. What I do know is that the value of the rights plus the rights issue price will settle at somewhere around the then current price of a share. In this case since the RI is being used to acquire assets and not to bail out a distressed company, I assume that the discount will be small.

Whilst I do not want to encourage Gengulphus to provide us with a couple of pages of detailed explanation he is the one who would be able to give us an idea of how the rights issue price is set. I am content just to leave it until the documents are produced.

Dod

[pendas]

How do others address the problem of a rights issue when the share is held in a ISA?

I'm usually fully invested from April as the unsheltered portfolio is moved across, so extra cash for a rights cannot be added and would have to come from any accumulated dividends if sufficient exist.

As it happens in this case, the share is held outside an ISA and even if it wasn't, the timing is such that I could plan for it but I'm wondering as a general rule if it's wise to be fully subscribed and invested in an ISA from April 6th.

[Breelander]

How do others address the problem of a rights issue when the share is held in a ISA?

Makes no difference, I've had rights issues in my ISA and the ISA manager offered me the same options as I would have if held as certificates - take up in full or part (inside or outside ISA) sell rights or just let them lapse (and get their lapsed value, if any). Only difference is you instruct the ISA broker, not the Registrar.

[Dod101]

I am usually fully subscribed in my ISA by not later than 6 April in any one tax year. This ensures that I get the maximum tax benefit. If a rights issue comes along I usually simply apply the value of the rights to buy new shares and accept what is usually a modest dilution of my holding but it all depends..........

Dod

[Alaric]

How do others address the problem of a rights issue when the share is held in a ISA?

You have to hold back sufficient cash to finance it, or sell existing shares.

[kempiejon]

I am usually fully subscribed in my ISA by not later than 6 April in any one tax year. This ensures that I get the maximum tax benefit. If a rights issue comes along I usually simply apply the value of the rights to buy new shares and accept what is usually a modest dilution of my holding but it all depends..........

Dod

I apply the same re being full invested with each new tax year, but one can tail swallow by rights selling as an option with my provided Halifax/AJ Bell or if a pending right issue is telegraphed well in advance hold dividends in the account to take up new issues.

[scrumpyjack]

The big advantage, for the company and its shareholders, of a deeply discounted rights issue is that it should cost much less to underwrite it and so be cheaper. I suspect this is why the city doesn't tend to recommend that, ie they get lower fees.

Doesn't really make much difference to the investor. You can either take it all up, in which case the cost is the same, or 'tail swallow' (sell enough nil paid rights to fund taking up the balance of the rights.

[Dod101]

Yes, I usually tail swallow which is what I meant with my previous post. That costs nothing and at least allows participation in a rights issue - if you would like that! I am inclined to think that taking up the Phoenix rights would be a good idea. I think this deal sounds positive for Phoenix, that is.

Dod

[pendas]

Thanks for the replies to my query. Tail swallowing or releasing money from other sales seems to be the solution in the circumstances I described if wanting to take up the offer.

I have a half holding in Phoenix so it does come well up on the HYPTSS.

Purchased in May last year, the share price has flat lined prior to this announcement with only one dividend received so far. I'll see what you guys think to the offer when it's made and then make my mind up.