KCOM Group (KCOM)

[spiderbill]

KCOM's share price rose by 33% today on news that it is to be bought by Universities Superannuation Scheme Ltd (USSL) for £504m.
Shareholders will receive 97p per share.
https://uk.finance.yahoo.com/news/pension-fund-ussl-buy-kcom-141115244.html

The report doesn't say what the timescale is and doesn't say anything about whether the dividend due in August is likely to be paid (I'm guessing probably not).

I'm a bit conflicted about this development. They were one of my earliest shares and I made a small profit on bed&ISAing my first holding and it's been a good dividend payer until this year's cut and price drop. Even recently it was on 4.3%

My current holding was about a thousand quid in the red on capital which this wipes out with a little bit left over, but I felt they would get back on track after investing heavily on infrastructure, and it means I need to find another home for the cash. It feels like a further contraction of the pool we can fish in, particularly in the telecomms sector.

cheers
Spiderbill

[77ss]

.....

The report doesn't say what the timescale is and doesn't say anything about whether the dividend due in August is likely to be paid (I'm guessing probably not)......

I think not:

If any dividend or other distribution is authorised, declared, made or paid in respect of KCOM Shares on or after the date of this Announcement, Bidco reserves the right to reduce the Acquisition Price by an amount up to the amount of such dividend or other distribution for each KCOM Share, in which case eligible KCOM Shareholders will be entitled to receive and retain such dividend or other distribution.

https://www.investegate.co.uk/universit ... 41279854W/

I no longer hold, having sold back in 2016, but keep a mildly interested eye on it.

[spiderbill]

Thanks for the Investegate link and the clarification. So basically the 97p is likely all we'll get, one way or the other, as I suspected. Unless of course there are any other bidders interested...

[Gengulphus]

Thanks for the Investegate link and the clarification. So basically the 97p is likely all we'll get, one way or the other, as I suspected. Unless of course there are any other bidders interested...

Or of course shareholders don't vote the scheme through - it does have the usual voting conditions for a scheme-of-arrangement takeover, which are (from the RNS, with my bold):

"In order to become Effective, the Scheme must be approved by a majority in number of KCOM Scheme Shareholders, representing at least 75 per cent. in value of the KCOM Scheme Shares voted by those KCOM Scheme Shareholders present and voting, either in person or by proxy, at the Court Meeting. In addition, the General Meeting Resolution required to implement certain matters in connection with the Scheme must be passed by KCOM Shareholders representing at least 75 per cent. of votes cast at the General Meeting."

I've emboldened the bit I have because it's probably the one that's most significant to small shareholders. The two 75% conditions are about numbers of shares, and one large fund shareholder can easily outvote hundreds or even thousands of small shareholders on that, despite the votes requiring a 75% majority. But the emboldened condition is about numbers of shareholders, and one small shareholder's vote will have equal weight to one large fund shareholder's vote for it.

The fly in the ointment as far as most small shareholders are concerned is that as I understand it, at least since Unilever attempted to unify as a single Dutch company a while back, the shareholders who are counted for that purpose are registered shareholders - i.e. shareholders who hold in CREST accounts or as certificates. Those who hold in nominee accounts aren't registered shareholders - their shares are generally held in a CREST account held by their broker's nominee company, as a combined holding of all the shares owned by the broker's clients who own that particular type of share, and registered in the name of the nominee company. So there is only one registered shareholder associated with all of those clients... A good number of nominee brokers will pass on votes to the company, and voting arrangements do generally include ones for the nominee company to vote some of the shares in that combined holding for and others against the scheme, but those only affect the numbers-of-shares conditions: as far as the company is concerned, it's one shareholder whose votes are typically a mixture of 'for' and 'against'. I'm not certain whether that gets counted as neither a shareholder who is clearly for the scheme nor one who is clearly against it, or as both a shareholder who is for the scheme and one who is against it, but it makes no difference to the outcome of the majority-of-shareholders condition either way...

So if any nominee account shareholder feels strongly enough either way about the takeover to accept the cost and inconvenience of doing so (and I'm not saying anyone ought to, just that it's an option for anyone who does feel that strongly), make yourself a registered shareholder and vote your shares. Probably the easiest ways are either to buy a small number of extra shares as a certificate, or to 'rematerialise' your holding as a certificate. Both of those do involve cost and quite possibly some inconvenience, I'm afraid - which is why I say one needs to feel strongly enough to justify doing it!

Gengulphus

[Lootman]

if any nominee account shareholder feels strongly enough either way about the takeover to accept the cost and inconvenience of doing so (and I'm not saying anyone ought to, just that it's an option for anyone who does feel that strongly), make yourself a registered shareholder and vote your shares. Probably the easiest ways are either to buy a small number of extra shares as a certificate, or to 'rematerialise' your holding as a certificate. Both of those do involve cost and quite possibly some inconvenience, I'm afraid - which is why I say one needs to feel strongly enough to justify doing it!

From my perspective I would have to feel very, very strongly about an issue to do that. Not only is there the cost and inconvenience that you mention. There is also the added complexity for your tax affairs.

An ISA has to be held in a nominee account anyway so presumably we are talking about taxable accounts here, and any holdings that are in such an account will not be included in a consolidated tax certificate, meaning that it has to be tracked and assessed independently for tax purposes. That for me is a red line as I have been trying for years now, and mostly successfully, to simplify my tax situation.

And to put it another way, if I felt that negatively about a share then I am more likely to vote in a different way - by selling it - which I have done in the face of a few corporate actions over the years.

Incidentally I've noticed a trend towards index funds voting their proxies. Historically they did not do that as by their very nature index funds are agnostic and neutral. But apparently they cannot resist having all that power and not using it

[midgesgalore]

Just noticed the increase in share price tonight when I finally got time to have a look at today's general state of play.
Looks like I'll be selling before the bid situation runs it's course!

For some reason the buying price today topped the 97p Acquisition Price where the closing buy/sell is 97.7/97.5. I expect this is BidCo buying up the company in advance of the bid period maturing.
In any case I make a small capital profit overall and a wee bit more considering the dividends from 5 years of holding.

What now to supplant it with I wonder?

midgesgalore

[Gengulphus]

For some reason the buying price today topped the 97p Acquisition Price where the closing buy/sell is 97.7/97.5. I expect this is BidCo buying up the company in advance of the bid period maturing. ...

That almost certainly won't be happening, because the Takeover Code requires a bidder who buys for more than the price they've bid to increase their bid to at least the price they paid for their purchase. I suppose a bidder might try to get away with it undetected, but paying a higher-than-bid price on the open market does not seem to me a good way to do so: I think an in-kind incentive (e.g. "sell us your shares at 97p, and we'll see you get a very good deal on your next phone contract" offered privately to a significant shareholder) would be rather more plausible, and even that would have to be kept very quiet - which is pretty hard to guarantee in a big organisation.

The usual reason for such rises above the price bid is speculation by market participants about a higher competing bid appearing. Someone buying at 97.7p at this point will be expecting to lose a small percentage of their investment (less than 1% of it excluding costs, probably 1-1.5% including them for a reasonably big purchase) if this bid tamely goes through as it is, but has a chance of a much bigger gain if higher competing bid arises (especially if that then leads to a bidding war, with the original bidder topping that, the new bidder going higher still, etc) - and also a chance of a much bigger loss if this bid falls through for some reason without a higher bid emerging. If one reckons the chance of a higher bid is significant, and also that it's significantly greater than the chance of the existing bid falling through, that can look like a good bet. Not by any means a certainty, but if one is good at making such judgements, makes big enough bets to keep costs low, and makes enough such bets (which may well require one to look for them in a broad range of markets and/or to look for other 'special situations' besides bids), it is likely to be profitable overall, even though there will be individual losses along the way.

Those are three very significant ifs, though, especially the first one, so don't take this as encouraging anyone to do it! And in case anyone is wondering, no, I don't make such bets myself, other than those I'm thrown into anyway by a bid being made for a share I own and the market price rising above the price bid: in those circumstances, the decision whether to sell at the higher price available now is of course a decision whether to make such a bet by continuing to hold, or decline to make it by selling. And no, my past record on such bets would not encourage me to become a 'special situations' investor, even if I were inclined to do the large amounts of research involved, so don't expect any recommendations from me about how one should call this particular one...

Gengulphus

[midgesgalore]

Thanks for your thoughts Gengulphus, in any case I sold on Friday at 97.504p.
I decided the risks of hanging on with a cancelled dividend (or acquisition price reduced by any future dividend) wasn't worth the gamble. Luckily I did reasonably well with the stock as, admittedly, this is a smaller market cap than I should have been depending on for income. I should never have been there in the first place.

midgesgalore

[spiderbill]

Share price up 12% this morning on a switch of recommendation to a new bidder - MEIF 6 Fibre Ltd. Offering 108p per share compared to the previous 97p from Humber.
http://www.morningstar.co.uk/uk/news/AN_1559548243200874000/kcom-spurns-offer-from-uss-in-favour-of-sale-to-macquarie-unit.aspx

Glad I held on.

[zharrt]

Oooops, just seen there was already a thread on KCOM, so heres my post from elsewhere...

My policy is usually never to sell shares unless the dividend dries up and there is little to no hope of recovery, but stuck as to what to do with KCOM, do I just cash in and transfer to BT so sector and yield is maintained.

A month or so ago I was looking at -25% on values, today it's up ~15%!

[OLTB]

Share price up 12% this morning on a switch of recommendation to a new bidder - MEIF 6 Fibre Ltd. Offering 108p per share compared to the previous 97p from Humber.
http://www.morningstar.co.uk/uk/news/AN_1559548243200874000/kcom-spurns-offer-from-uss-in-favour-of-sale-to-macquarie-unit.aspx

Glad I held on.

I don't hold KCOM but on the subject of just holding on to shares until 'market trading' occurs, I did just that with SKY and glad I did!

Cheers, OLTB.

[zharrt]

Share price up 12% this morning on a switch of recommendation to a new bidder - MEIF 6 Fibre Ltd. Offering 108p per share compared to the previous 97p from Humber.
http://www.morningstar.co.uk/uk/news/AN_1559548243200874000/kcom-spurns-offer-from-uss-in-favour-of-sale-to-macquarie-unit.aspx

Glad I held on.

I don't hold KCOM but on the subject of just holding on to shares until 'market trading' occurs, I did just that with SKY and glad I did!

Cheers, OLTB.

Not wanting to take a thread OT, but if you sell a losing position it will only ever be a loss, if it takes 10 years to rebound it's a good idea to hold, if the company folds or gets bought out hopefully my diversification will be good enough to not notice the total loss of one holding.

Six weeks ago I was looking at a loss on KCOM, now I am not

[Bouleversee]

I see from the records that I bought 200 shares (certificated in those days) in KCOM in March 2000; actually, since I usually put round sums in rather than buy round numbers of shares, I suspect my husband did the deal. The price paid was £10.80 p.s. so I don't think I'll be cracking open any champers when my cheque for £216 comes through the letter box.

I am afraid our lives were turned upside down by my husband's protracted illness around that time and I haven't really followed why what was once a successful company (I remember they owned our local telephone exchange when I was a child) has come to such a low pass. Can anyone enlighten me?
Brokers' s.p. histories don't seem to go back more than 10 years so it must have had a major collapse at some point before then or was it just a gradual decline?

I voted against the first bid and was pleased that it was superseded, not that it will put much more in my pocket. I rather hope this one won't go ahead either and that the company will pull itself up by its bootstraps, though I know that is just a pipe dream. I suppose the various directors and executives were paid a fortune whilst losing mine but I can't be bothered to have a look to see just how much.

[BobGe]

A big run up into and then the subsequent bursting of the dot-com bubble. That purchase was just after the peak it seems.

[Alaric]

I see from the records that I bought 200 shares (certificated in those days) in KCOM in March 2000; actually, since I usually put round sums in rather than buy round numbers of shares, I suspect my husband did the deal. The price paid was £10.80 p.s. so I don't think I'll be cracking open any champers when my cheque for £216 comes through the letter box.

I have records of the price being 490 in September 2000 and 62 in April 2011. The morningstar graphs show a peak in February 2000 of 1340, It then drops below 100 within 18 months and stays in a "50 to 120" range for ever.

[Bouleversee]

Thanks, both. Silly me, I had forgotten about the dot-com boom and bust, probably because the memory is too painful. Oh well, I can use the loss when I cash in gains this tax year.

[spiderbill]

News this morning that there is now to be an auction
https://uk.finance.yahoo.com/news/uks-takeover-panel-auction-telecom-101416714.html
All seems very odd. Are we likely to get more or less than the MEIF bid of 108p? Recent share price movements would suggest more but why didn't MEIF make a final offer?

[Bouleversee]

Yes, I read about that in The Times this morning. Very strange. I thought MEIF/Macquarie HAD made a final offer which the BOD recommended, withdrawing their recommendation of the previous slightly lower offer from Humber Bidco and we had been asked to vote re the Scheme of Arrangement. You wouldn't think they would go to all that expense (twice) without having a definite final offer. Wouldn't an auction mean that they would be obliged to accept the highest bid even if lower than the ones received previously, unless they have set a reserve? I just hope they have. I've never heard of such a thing though no doubt Gengulphus and others will come up with previous examples. One wonders how good their advisors are. They are the ones who will be in the money.

Is it known whether MEIF and Humber Bidco will be the only participators in the auction or can anyone join in though it's a bit short notice for anyone else to get their act together.

[Bouleversee]

Presumably the market is expecting the auction to achieve a higher price than the 108p per share previously offered as the s.p. is now 114.6p (to buy).

What I'd like to know is what happens, in the event of a takeover, to the options (with a nil exercise price) granted to "the KCOM Directors and their respective close relatives, related trusts and connected persons under the KCOM LTIP and remain outstanding, not yet able to be vested" between July 17 2017 and Feb. 15 2019 and what they did to deserve them, especially the 872,340 granted to Graham Sutherland on 30.11.18 and the 404,494 granted to Anna Bielby on 15.2.19. Will they lose these or be able to cash in or be compensated for these as part of their compensation?

[spiderbill]

Better news on the KCOM sale. The auction has resulted in a bid of 120.3 pence from MEIF.
https://uk.finance.yahoo.com/news/macquarie-backed-meif-6-fibre-172447710.html
A sizeable improvement from the 108p we were expecting just a few weeks ago and double the price it dropped to at the end of last year. That more than makes up for the loss of the dividend in this year's figures.

Now I just have to work out what to replace them with. Can't see it being anything telecomms related!