The Lemon Fool

@absolutezero: As I understand it Tate is a dividend and Aviva is a repayment of capital.

Best wishes,

Steve

Steveam wrote:@absolutezero: As I understand it Tate is a dividend and Aviva is a repayment of capital.

Best wishes,

Steve

Still involves an annoying CGT calculation after the consolidation when I eventually sell!

absolutezero wrote:

Steveam wrote:@absolutezero: As I understand it Tate is a dividend and Aviva is a repayment of capital.

Best wishes,

Steve

Still involves an annoying CGT calculation after the consolidation when I eventually sell!

It needs the CGT calculation when the 100p cash is returned. At that point you have made a part disposal and Aviva will announce the proportion of your holding that you are deemed to have disposed of. It will, I guess, be about 25% of your holding and so that percentage of cost.

The share consolidation has no effect on that. It is simply the same remaining cost spread over a smaller number of shares.

scrumpyjack wrote:

absolutezero wrote:

Steveam wrote:@absolutezero: As I understand it Tate is a dividend and Aviva is a repayment of capital.

Best wishes,

Steve

Still involves an annoying CGT calculation after the consolidation when I eventually sell!

It needs the CGT calculation when the 100p cash is returned. At that point you have made a part disposal and Aviva will announce the proportion of your holding that you are deemed to have disposed of. It will, I guess, be about 25% of your holding and so that percentage of cost.

The share consolidation has no effect on that. It is simply the same remaining cost spread over a smaller number of shares.

It may be a bit more complicated than that, given the current SP of 136p and the proposed 'disposal' of 24% at 101.69p. Say for instance that you'd bought your holding at 115p; you're receiving the B shares at a loss. So your profit rests with the remaining 76%, and thereby CGT will be only be payable when you sell those. I'd have thought. In the meantime, can you claim a capital loss? I'm sure I've got this entirely wrong...

436p not 136p I hope!

If you hold 10,000 shares at a cost of £50,000 and they return 100p per share and the shares are quoted XR at 336p you will have disposal proceeds of £10,000 and cost of (10,000 x 100p / ((10,000 x 100p) + (10,000 x 336p)). You have disposed of 22.938% of your holding, costing £11,467.89 and your remaining holding cost is £38,532.11. The number of shares is still 10,000 until they do the consolidation. If those shares are consolidated to 8,000 shares, those shares still have a cost of £38,532.11

You have realised a loss of £1,467.89 from the capital return.


That is how I think it will work.

absolutezero wrote:Yuk.
Like Tate and Lyle.
I hate these things.

In this instance I prefer Aviva's capital return over receiving a special as (some of) the shares are in a GIA account and I have CGT allowance available, but very little head room on the dividend allowance, so it saves me having to do a bed and ISA (or pay tax).

What I DO dislike is the consolidation which IMHO is a blatant trick to try and “fix” back at around the SP pre-capital,return .. 3 shares instead of 4 approx and SP around £4 to £4.40 .. so as they say or imply, they’re hoping the SP will stay in a similar range.

But you’ll now have ~3 for every 4 you held before, the company no longer has £1/share cash so EV goes down, I don’t like this bit.

I hold quite a lot of AV and I’d have preferred more buybacks upping the SP so I can choose when to crystallise a capital gain, not the employees of the company I “own”!

Bhoddhisatva wrote:What I DO dislike is the consolidation which IMHO is a blatant trick to try and “fix” back at around the SP pre-capital,return .. 3 shares instead of 4 approx and SP around £4 to £4.40 .. so as they say or imply, they’re hoping the SP will stay in a similar range.

But you’ll now have ~3 for every 4 you held before, the company no longer has £1/share cash so EV goes down, I don’t like this bit.

I hold quite a lot of AV and I’d have preferred more buybacks upping the SP so I can choose when to crystallise a capital gain, not the employees of the company I “own”!

The two main reasons for having a share consolidation are to maintain some sort of valid comparability in the share price history and to avoid causing inequity or problems in the various staff and executive share incentive schemes.

I think the reason for not doing it all via on market share buybacks is that it would probably be very difficult to buy back £4 billion of shares without major distortions in the share price, which would not be in the continuing shareholders interests.

Far more annoying was Tesco's £5 billion dividend and consolidation, forcing some shareholders to pay high rates of income tax on what was a return of capital. I had to sell my entire holding before it went ex that dv.

I'd be very surprised if this particular structuring of the scheme isn't done to stick a finger up to the preference shareholders. A few years Aviva mooted a return of capital for preference shares and the holders rebelled and refused the capital. So it looks to me like the company has decided to bypass the preference shareholders completely and channel the cash straight to the ord holders, leaving around £3.75bn less ordinary share capital (on top of the £1bn already returned) ahead of the preference shares. I don't know if the pref prices have fallen but they must be materially more risky after this corporate action so personally I'd want a higher yield in compensation if buying.

Whether the scheme as structured is completely kosher I don't know. Haven't examined it but it looks like they are issuing a new class of shares to ord holders only, which are redeemable at issue and can therefore immediately be bought back, presumably at a premium. I might have a quick look if anyone is interested but given the abuse I faced last time for merely reading the articles and company law....

GS

scrumpyjack wrote:

Bhoddhisatva wrote:What I DO dislike is the consolidation which IMHO is a blatant trick to try and “fix” back at around the SP pre-capital,return .. 3 shares instead of 4 approx and SP around £4 to £4.40 .. so as they say or imply, they’re hoping the SP will stay in a similar range.

But you’ll now have ~3 for every 4 you held before, the company no longer has £1/share cash so EV goes down, I don’t like this bit.

I hold quite a lot of AV and I’d have preferred more buybacks upping the SP so I can choose when to crystallise a capital gain, not the employees of the company I “own”!

The two main reasons for having a share consolidation are to maintain some sort of valid comparability in the share price history and to avoid causing inequity or problems in the various staff and executive share incentive schemes.

I think the reason for not doing it all via on market share buybacks is that it would probably be very difficult to buy back £4 billion of shares without major distortions in the share price, which would not be in the continuing shareholders interests.

Far more annoying was Tesco's £5 billion dividend and consolidation, forcing some shareholders to pay high rates of income tax on what was a return of capital. I had to sell my entire holding before it went ex that dv.

But of course they anticipate considerable distortion of the share price anyway otherwise they would not be proposing the share consolidation. But a truly massive share buyback (in relation to market cap) on market might cause the share price to run away from them, which is probably what you meant by your comment.

Dod

GoSeigen wrote:Haven't examined it but it looks like they are issuing a new class of shares to ord holders only, which are redeemable at issue and can therefore immediately be bought back, presumably at a premium. .

I don't think they are doing anything that numerous other Companies haven't done before. It's a standard method of making a return of capital. At some stage shortly after the consolidation they should be announcing an apportionment facto as agreed with HMRC. This is applied to the book cost to give the base cost for an immediate capital gain and the balance for future disposal

The other method is a specia; dividend.

What you need to remember first and foremost with these types of schemes is that they are always aimed to meet the requirements of the large institutional shareholders, never small retail investors. We should never forget where we stand in the grand scheme of things; we are but stuff they have to scrape off their shoe every now and again!

All the best, Si

Alaric wrote:

GoSeigen wrote:Haven't examined it but it looks like they are issuing a new class of shares to ord holders only, which are redeemable at issue and can therefore immediately be bought back, presumably at a premium. .

I don't think they are doing anything that numerous other Companies haven't done before. It's a standard method of making a return of capital. At some stage shortly after the consolidation they should be announcing an apportionment facto as agreed with HMRC. This is applied to the book cost to give the base cost for an immediate capital gain and the balance for future disposal

The other method is a specia; dividend.

Ok stupid question then, but how precisely in accounting/legal terms are they managing to return capital to the ord holders without granting preference shareholders their prior entitlement to the capital?

GS

GoSeigen wrote:

Alaric wrote:

GoSeigen wrote:Haven't examined it but it looks like they are issuing a new class of shares to ord holders only, which are redeemable at issue and can therefore immediately be bought back, presumably at a premium. .

I don't think they are doing anything that numerous other Companies haven't done before. It's a standard method of making a return of capital. At some stage shortly after the consolidation they should be announcing an apportionment facto as agreed with HMRC. This is applied to the book cost to give the base cost for an immediate capital gain and the balance for future disposal

The other method is a specia; dividend.

Ok stupid question then, but how precisely in accounting/legal terms are they managing to return capital to the ord holders without granting preference shareholders their prior entitlement to the capital?

GS

As I'm sure you know, preference shareholders are only entitled to a fixed dividend, paid before any dividend can be paid to ordinary shareholders (hence the word preference) and in a winding up of the company are entitled to their nominal par value before the rest gets given to the ordinary shareholders.

So yes, Aviva could have offered to pay off the preference shares at par but perhaps thought such an offer would be unlikely to be accepted when they are currently trading on the market at a 40% premium to par. Par is the only entitlement the prefs have to capital. The par value of the ordinary is 25p but they are entitled to all the surplus over par (or lose any deficit).

As for accounting/legal, I guess they will use the tried and tested B/C shares arrangement

scrumpyjack wrote:

GoSeigen wrote:

Alaric wrote:

GoSeigen wrote:Haven't examined it but it looks like they are issuing a new class of shares to ord holders only, which are redeemable at issue and can therefore immediately be bought back, presumably at a premium. .

I don't think they are doing anything that numerous other Companies haven't done before. It's a standard method of making a return of capital. At some stage shortly after the consolidation they should be announcing an apportionment facto as agreed with HMRC. This is applied to the book cost to give the base cost for an immediate capital gain and the balance for future disposal

The other method is a specia; dividend.

Ok stupid question then, but how precisely in accounting/legal terms are they managing to return capital to the ord holders without granting preference shareholders their prior entitlement to the capital?

GS

As I'm sure you know, preference shareholders are only entitled to a fixed dividend, paid before any dividend can be paid to ordinary shareholders (hence the word preference) and in a winding up of the company are entitled to their nominal par value before the rest gets given to the ordinary shareholders.

So yes, Aviva could have offered to pay off the preference shares at par but perhaps thought such an offer would be unlikely to be accepted when they are currently trading on the market at a 40% premium to par. Par is the only entitlement the prefs have to capital. The par value of the ordinary is 25p but they are entitled to all the surplus over par (or lose any deficit).

As for accounting/legal, I guess they will use the tried and tested B/C shares arrangement

My point is it doesn't matter what Aviva thought about acceptance of such an offer, the fact is the scheme (as I see it) prejudices the interests of the preference shareholders -- who are senior to the ordinary holders -- and I can't at first glance see why they would not be entitled to object. So I must be missing something, and as Alaric found the matter so straightforward I was hoping he would explain it in simple terms...

GS

GoSeigen wrote:So I must be missing something, and as Alaric found the matter so straightforward I was hoping he would explain it in simple terms...

If there was a choice between a cash payment of 100 or an incone stream which should be worth 140 to 150, what should be the choice?

GoSeigen wrote:

scrumpyjack wrote:

GoSeigen wrote:

Alaric wrote:

GoSeigen wrote:Haven't examined it but it looks like they are issuing a new class of shares to ord holders only, which are redeemable at issue and can therefore immediately be bought back, presumably at a premium. .

I don't think they are doing anything that numerous other Companies haven't done before. It's a standard method of making a return of capital. At some stage shortly after the consolidation they should be announcing an apportionment facto as agreed with HMRC. This is applied to the book cost to give the base cost for an immediate capital gain and the balance for future disposal

The other method is a specia; dividend.

Ok stupid question then, but how precisely in accounting/legal terms are they managing to return capital to the ord holders without granting preference shareholders their prior entitlement to the capital?

GS

As I'm sure you know, preference shareholders are only entitled to a fixed dividend, paid before any dividend can be paid to ordinary shareholders (hence the word preference) and in a winding up of the company are entitled to their nominal par value before the rest gets given to the ordinary shareholders.

So yes, Aviva could have offered to pay off the preference shares at par but perhaps thought such an offer would be unlikely to be accepted when they are currently trading on the market at a 40% premium to par. Par is the only entitlement the prefs have to capital. The par value of the ordinary is 25p but they are entitled to all the surplus over par (or lose any deficit).

As for accounting/legal, I guess they will use the tried and tested B/C shares arrangement

My point is it doesn't matter what Aviva thought about acceptance of such an offer, the fact is the scheme (as I see it) prejudices the interests of the preference shareholders -- who are senior to the ordinary holders -- and I can't at first glance see why they would not be entitled to object. So I must be missing something, and as Alaric found the matter so straightforward I was hoping he would explain it in simple terms...

GS

Pref shares and ordinary shares are two quite separate classes of shares, each with their own rights and liabilities. You would need to look up the company Articles I guess to get the exact rights involved but I have always seen a reconstruction of the ordinary share capital as quite separate from the rights of the prefs. You seem to have a gripe about this but you ought to write to the Company Secretary and see what he/she has to say.

Dod

Quite so. Preference shares are like a form of fixed interest borrowing. They generally have no rights other than for their capital to be returned in a winding up preferentially and for the coupon to be paid in preference to any dividend to ordinary shares. Certainly they have no right to interfere with payments to ordinary shareholders out of the company's surplus resources. Otherwise no company could ever pay a dividend to ordinary shareholders because any payment reduces the surplus assets providing cover for the prefs. Obviously if the articles of association of Aviva gave them additional rights that would be a different matter.

Dod101 wrote:Pref shares and ordinary shares are two quite separate classes of shares, each with their own rights and liabilities. You would need to look up the company Articles I guess to get the exact rights involved but I have always seen a reconstruction of the ordinary share capital as quite separate from the rights of the prefs. You seem to have a gripe about this but you ought to write to the Company Secretary and see what he/she has to say.

Dod

I see where you are trying to go, but in fact they are not independent. There is common and statutory law governing their interrelations and as you say the rights of preference shares are laid out in the articles (contract) of a company and they are explicitly NOT independent of ordinary shares -- how could they be? By definition they have priority over ordinary shares so clearly there will be some things you can do with ords and some things you cannot. The detail is in the Articles. It's ages since I read Aviva's, but I can only think there must be specific exceptions that are being exploited here to pull the rug from under the preference shares.

I don't have any gripe because I am an ordinary shareholder only and very happy to have such a chunk of capital returned; it is the long-suffering preference shareholders that I am thinking about. You and I know that when a whole lot of capital walks out the door it's only a matter of time before the company comes back and says "Oops, we've overvalued our assets, and look we're short of capital now and need our dear shareholders to rescue us".


GS

Alaric wrote:

GoSeigen wrote:So I must be missing something, and as Alaric found the matter so straightforward I was hoping he would explain it in simple terms...

If there was a choice between a cash payment of 100 or an incone stream which should be worth 140 to 150, what should be the choice?

Okay, Alaric is saying that the capital return is NOT in fact kosher from the perspective of preference shareholders (so agreeing with my original point) but that if they complained they would simply be offered their par value -- which they have shown they would refuse at a market value of 180p per share and inflation below 2% but which he believes they would still refuse at a market value of 145p per share and inflation at 5%+ and £5bn worth of capital having walked out the door. So he believes the company, despite what happened a couple of years back, has gambled on the preference shareholders sitting quietly and accepting this violation of their rights and will do nothing despite having the right to object.

It's exactly one of the scenarios I'd considered, but wanted to reject because my attitude to life is to credit people with intelligence and good faith. So I really, really hoped Alaric had read the company articles and had an interesting loophole to show us. Alas, as usual I was too optimistic!

GS