Carpetright

[Bouleversee]

Is there any point in taking up the Open Offer at 28p (current s.p. 38.4 p) or would I just be throwing good money after bad? I have held them for many years and at the moment am losing most of my investment.

[simoan]

Is there any point in taking up the Open Offer at 28p (current s.p. 38.4 p) or would I just be throwing good money after bad? I have held them for many years and at the moment am losing most of my investment.

Who could possibly know the correct answer to this question? IMHO you need to mentally separate your existing holding from any new investment in the Open Offer. Ignore the fact that the offer is below the current market price if you can as that makes it look like a bargain. Are there no better investments you could make using the new money? The choice is yours..

All the best, Si

[Bouleversee]

Thanks, Si. Obviously, nobody can know for certain but some might have a better idea than I do. Taking up the rights at Lonmin certainly proved not the right thing to do but that's not necessarily relevant. Topping up PFC after their big drop has paid off - so far - but that's not necessarily relevant either. Some weeks ago I asked a staff member at a new store locally how business was going and he said they were doing very well; a few days later things turned very sour. It is very difficult to know how long the retail downturn is going to last and whether changes they are making will turn things round or whether the money raised now will just prolong the agony and put money in the pockets of the sponsor and Joint Bookrunners, whatever they are. As regards better options, I wouldn't know. Things rarely turn out as I would expect, e.g. I had expected M&S to drop today after their lousy results but they rose quite a bit instead. I am only entitled to £456.12 worth so on its own not worth buying an alternative. Unfortunately, I have quite a lot of retail holdings (I shall no doubt be receiving a similar half inch thick document from Mothercare in the near future), almost all of which are doing badly. Now if Dairy Crest had given me the opportunity to take up a discounted open offer or rights issue, I might have felt more confident in taking it up as I am actually making a profit on my holdings there but no, they did a discounted placing to institutional holders instead while increasing the annual dividend by the princely sum of 1p (0.4%) "in line with our progressive dividend policy."

It would be interesting to know whether any other TLF followers still hold Carpetright and if so what their views are. I haven't yet seen any press opinions about it. Only 201 pages of small type to get through by 5 June.

[Gengulphus]

Is there any point in taking up the Open Offer at 28p (current s.p. 38.4 p) or would I just be throwing good money after bad? I have held them for many years and at the moment am losing most of my investment.

One thing you could do is take up a number of shares equal to your current holding (which I believe will be considerably less than your full number of entitlements, as if I've skim-read the announcement correctly (*), shareholders have got 88 entitlements per 27 existing shares) and at the same time sell your current holding (which won't get rid of your entitlements - shares have been sold without their entitlements accompanying them in the sale since May 18th, the ex-entitlements date). You end up with the same number of shares as you currently have, but up on cash by the price at which you sell minus 28p per share (so 10.4p per share if the selling price is unchanged), minus trading costs - which will mean you're better off than if you'd just done nothing, as long as you have at least the 100 or so shares needed for the per-share profit to cover the trading costs.

This is basically an instance of arbitrage - essentially, buying a security at a lower price and simultaneously selling it at a higher price to make a risk-free profit. Normal cases of arbitrage involve things like selling in London and simultaneously buying in New York when the two markets have got out of step price-wise on a security traded on both of them, and are really only things that big, specialist organisations can make a profit on, using highly-computerised trading systems. Extracting some value from otherwise-unusable Open Offer entitlements is one of the few cases where an individual investor can realistically do an arbitrage (there basically isn't a similar case for rights issues, by the way, because rights are never "otherwise-unusable" - they can have their value extracted from them by selling them, and even if the investor neither takes them up nor sells them, they will have their value automatically extracted from them by the company and sent to the investor as a lapsed-rights payment).

Another sort-of-arbitrage technique for extracting value from the open offer entitlements is to sell your existing holding and use the proceeds to take up as many entitlements as possible - you'll end up with essentially no more cash than you started with, but just under 38.4/28 = 1.37 times as many shares, assuming the selling price is still 38.4p ("just under" because of the trading costs of the sale - if for instance they were a £10 broker commission, that would take about 36 lots of 28p out of the proceeds and so reduce the number of shares you ended up with by about 36). I.e. it's a risk-free gain on the number of shares you own rather than on cash, and so does make the potential loss if the company subsequently goes bust larger. The plus side is that without putting any new cash at risk, it potentially extracts the value from about 37 of the 88 entitlements you've got per 27 current shares, rather than from only 27 of them.

It is possible to extract the value from even more entitlements than that without any change to your long-term shareholding, but only by shorting the shares (which won't be possible for a lot of brokers / accounts) or by taking a short-term risk with additional cash (i.e. take up the entitlements now and risk the share price dropping below 28p before they new shares land in your account and you can sell them).

Lastly, just to be clear: I'm only saying that selling your existing holding and taking up enough Open Offer entitlements to replace it or as many as you can fund from the sale proceeds are better than doing nothing (with the exclusion about it being killed by the trading costs if your existing holding is really small). I'm not saying that either is the best thing to do or that either is better than the other - I'd need to be far more familiar than I am with the company and its predicament to say any such thing with any confidence!

(*) I've skim-read it (and only that, not anything more detailed) in response to this thread, as I don't hold Carpetright shares myself. I did once hold them in my HYP, but sold them in 2011 - one of my better tinkering decisions!

Gengulphus

[Bouleversee]

Many thanks, Geng, but that won't work because a) my current holding of 500 shares is in certificated form and b) its value (purchase cost in Jan. 1998: £2491.83) is now only £194. I am entitled to 1,629 shares at a cost of £456.12. I'm not sure whether I'd get another certificate for these or whether they'd be in Crest, in which I don't have any holdings at present and don't really understand but must find out. If I concluded they would be worth buying at all, I would want to maximise the holding, or I could take up the offer and then transfer them to a broker and sell the lot (mine charges £5), reducing my loss marginally. Pity we no longer have indexation of losses/gains. As with TRE, the sums now involved don't justify the time spent sorting out what to do, especially without a crystal ball showing whether they are going to do a Carillion or recover. Maybe Bookrunner is just another word for Bookie.

[Dod101]

I am really sorry Bouleversee. You seem to be holding an awful lot of not very good shares. If I have read the bumph properly this is another rescue fundraising. It seems to be working for Provident Finance but that was a bad execution of an idea not the fundamental point about its market.

The numbers you quite are not very significant either way but I would not put any more money into it because whatever happens it is not going to change your life and there is a good chance that it will all go pearshaped in the end anyway.

Dod

[Bouleversee]

Dod -

Yes, the buy and hold philosophy doesn't seem to be working in a number of cases. Never mind, I'm making £64k on VCP and I've lost count of what I am making on FSJ (having offloaded a lot to children and grandchildren), ditto Persimmon and a few others. So glad I never trimmed the high fliers other than by gifting. And we made a bomb when we downsized 10 years ago. Can't win 'em all and as you say, it will make no difference to my life and no amount of money can compensate for personal losses. My aim now is to reduce and simplify my portfolios, especially the certificated and other non-ISA holdings, whenever there is an opportunity to sell at a decent price and I can find the time to deal with it all. I don't want to add any new holdings so it's a question of adding to existing ones or buying more ITs.

I wonder what my on-line brokers would have sent me in lieu of the 201 page prospectus. I'd much rather watch the Chelsea Flower Show but I suppose I should have a go at reading that, ridiculous as it seems. Or, as you suggest, I might just say to hell with it and let it lapse and sell my existing holding when I can get round to it. At least I have plenty of losses to set against gains.