Bouleversee wrote: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