Member Info for Hounddog10

MVarawa

Employer’s NI is cost neutral to the government as it receives the revenue. It may, however, be something of a hit to Lloyds and other companies with a large payroll. I agree that a tax on buybacks is quite possible but in the great scheme of things may not influence the decision to do a buyback.

One aspect of a buyback in contrast to a special dividend is that you can stop it, if needed. A special dividend is clearly a one off payment and once paid the money is gone. This might come into play next February, by which time they have said all surplus capital will be distributed. Rather unfortunately the FCA has pushed back its car loan review to May. They may get caught for some unexpected provisions when that is released. So my guess is that Lloyds may be more inclined to keep going the buyback route rather than any special dividend for any surplus capital to be distributed. Not sure there will be too much surplus. Wednesday will give a better idea.

The question is - is the $200m contract that was “moving much faster than expected” (and in a previous post I harboured some doubt as to timing) or is it the Indonesian contract for £140m ($180m) with some upward adjustment that was referred to in the last Trading Statement as clearly being “Customer 2”. There is no mention in the RNS of the UK export credit loan which underpins the Indonesian contract so it may more likely be the fast moving contract.

The Indonesian contract seemed to me to be more likely and if it is still extant we may be in for more good news. Similarly the two follow on contracts I would be quite confident about.

Been following this for a while and have now bought in. I would have a slightly different cut to JRC but end up with about the same result. There seems to be four near term contracts totalling $420m, one of which is for $200m, for an unspecified client and is moving much faster than anticipated. Two of the contracts are follow on and I think in the June webcast Simon mentioned that one of these contracts was worth $9m. I expect the other one will be relatively small. So I would guess that most of the remaining $220m relates to the Indonesian contract (say it is worth $150m). That is backed by a UK government loan and so SRT should not have payment problems as, when they reach milestones, there will be direct dispersal of loan amounts.

Overall the four contracts seem highly likely, albeit timing may take longer than wanted and care has to be exercised with the contract that is moving much faster than expected. Customers in, particularly, Asia/ME often demand suppliers move at pace but then rarely apply that attitude to their own decision making.

So say $420m over 3 years. Difficult to know gross margin but the 2017 annual report says that their long term target is 50%. So assume $200m gross profit over three years and knocking off 25% tax that is around $50m per year (around £40m). I think for a tech company one might be quite ambitious on p/e multiple. Certainly 15 and for UK companies 20 seems the norm (Sage is on a p/e of nearly 50!). So £600m - £800m m/cap. A straw man I know, but even discounting for very significant uncertainty that should support the current market cap.

Then there is the transceivers which now seem to pay for all of SRT’s overheads (except borrowing costs - but that is covered by the R&D tax credit) and probably means that that business alone can generate a profit for the whole company. Particularly so if NEXUS does reasonably well.

There is also the question of what SRT might do with significant cash inflows. They don’t seem to need significant working capital.

Could all be a bit too good to be true but there is a reasonable chance that SRT’s time may have come and, with luck, there is no significant downside (hopefully not cursing the share).

I would be almost certain that the rules that the algo is using does not go beyond what is set out in (c) of Resolution 22 of the last AGM resolutions. (c) incorporates the regulatory rules and makes it very difficult to buy back in a rising market. Note also that they have authority, if needed, to go beyond the year end to buy back.

https://www.lloydsbankinggroup.com/assets/pdfs/investors/shareholder-information/shareholder-meetings/2024-agm/2024-lbg-notice-of-agm.pdf

AP

You are entitled to the final 2p 2023/24 dividend (provided you held the shares at the xd date in August and the dividend is formally approved at the AGM in a couple of weeks time). It is paid end of September and I assume it will be paid out as normal and not eg go into escrow pending deal completion (the Offer Document makes no mention of any special arrangement).

There is also the 8p special dividend which will be receivable (along with, and at the same time as, the sale proceeds of the shares) - but only if the deal goes through.

The takeover is currently guided to complete in Q1 2025 but has a long stop date of 29 August 2025 so it could go into the summer (The long stop date is the last date by which the takeover must be declared unconditional or otherwise the takeover offer lapses. It can be extended with the agreement of the Takeover Panel but not by much).

So the potential “normal” dividend(s) that might come through are a 2024/5 interim and if the takeover extends to beyond the issue of the 2024/5 annual accounts (normally June if I remember correctly) any final 2024/5 dividend proposed in those accounts. However, IDS has currently suspended interim dividends and on the Q1 2025 timetable IDS will be off the market before a final dividend can be proposed, approved and paid.

The Offer Document states that if any ordinary dividends (except the 2p for 2023/24) are paid by IDS DK has the right to reduce his offer by that amount. The reason for this, almost certainly, is that the 8p special dividend is a substitute for the normal dividend income that shareholders would have expected to receive for 2024/25 if DK’s offer is unsuccessful and IDS remains on the market. This is a recommended offer and IDS is cooperating with DK in his takeover and will have guided him to 8p as being the likely total dividend amount they would have intended to pay for 2024/25.

By implication I would have thought it unlikely that an interim dividend will be paid as I don’t think DK particularly wants the adjustment mechanism to kick in (as indicated above it is intended IDS will be off the market before a final dividend). It is rather messy to explain to retail investors who will likely see it as an attempt by him to renege on his offer price. It helps that there has not been an interim dividend for a while.

So the short answer, after a rather long explanation, is that aside from the 2p shareholders should not expect to benefit from any further dividends from IDS as it is deemed covered by the 8p special dividend.

Newdealz

I am glad you got a sensible answer so quickly. I had rather feared, as I think you were anticipating, that it would be quite a battle and you might not be successful. I had my own run in, earlier this year, with a corporate actions team at my SIPP provider in trying to vote no on a takeover. They adamantly told me that you couldn’t vote and the takeover was compulsory. They stonewalled me even after I sent them the Offer Document pointing to the voting procedure and maintained that position even when I escalated the matter as a complaint. I couldn’t get them to budge. Frustratingly, I was able to easily vote on another tranche of shares held with my ISA provider. The people in these corporate actions teams are not often well trained.

It is interesting that others have also “reversed”. I am a bit surprised that people would have been aware that you can do it as it is not made obvious.

Offer Document

https://www.internationaldistributionservices.com/media/12347/offer-document.pdf

Newdealz

Firstly I am rather surprised at what your broker is saying. It seems the position they are taking is that you get your shares back (ie out of escrow) but going forward cannot vote. This cannot be correct. Clause (g) (bottom of page 70) of the Offer Document makes it clear that if you reverse you can the re-assent to the Offer following the procedure you went through to originally assent. It would be worth putting this point to your broker. (A description of the procedures for reversal and the implications start on page 69).

Secondly, there is a Shareholder Helpline (see page 8 of the Offer Document for details) run by Equiniti, the Receiving Agent. They will be as good as you can get in terms of giving advice on corporate actions (they are, I think, the biggest player in this area) and as the Receiving Agent any reversal you do (or done on your behalf by your broker) ultimately lands up with them. So they should know. If you can get some advice out of them (perhaps in an email or at least be able to refer to a contact) this may help persuade your broker that they are wrong.

Thirdly, I think your worry is not really about being able to vote but by virtue of not being able to vote ending up with non tradeable shares if the vote is 75%+ but less than 90%. This is a legitimate concern (although I think DK will make every effort to buy out residual minority shareholders). However, if your broker “gets your shares back” then you should be able to sell at any time up until the deal goes through (if indeed it does). If the deal looks increasingly likely to go through (regulatory and anti trust clearances received, institutional investors prepared to accept etc) then the share price should, in normal circumstances, gravitate towards 368p (360p offer price and 8p special dividend - you are already entitled to the 2p final dividend). So you should be able to sell at something close to 368p and not need to vote yes to liquidate your shares. However, you would need to make that decision closer to the time depending on circumstances.

To answer your specific question as to whether to sell and re-buy in order to be entitled to vote I suppose it might be worth it but you will suffer a spread. As I have put above it is probably better to persuade your broker to restore you to your original position and/or make sure that the shares they hold for you can be sold when you want to.

The more encouraging bits are that operating loss (mainly due to cost control) was only £50k in Q2 and that is what the run rate currently is in Q3. They are also a bit later in submitting their R&D tax credit application (last year £98k) so that now falls into H2. They are making progress with higher margin d2p and that is on track for around £800k for the full year. Overall, they might get to closeish to breakeven for H2 and generally they are making progress. But never underestimate SYM’s ability to disappoint.

The Times reports that Ofcom are now going to do a more detailed review early next year with a view to coming to a decision in Summer 2025. At the rate they are going there won’t be any letters left to worry about.

First sentence - I meant ANY higher price ie equal value. DK cannot go lower!

Newdealz

If the deal goes through you will get the higher price. As you indicate there is a general principle underpinning the Listing and Takeover rules that all shareholders of a particular class of shares get treated equally.

I suspect the previous takeovers you were involved with were done by Scheme of Arrangement. This is the most common method by some distance now (and is preferred by acquirers). Under a Scheme (which is done under court supervision) if the vote is successful for the acquirer then ALL shareholders are bound to sell their shares whether they have voted for, against or not at all. Crucially the shares are tradeable until the last moment when they are taken off the market.

However, the IDS takeover is being done by the traditional method of Contractual Offer which has to adhere to the Takeover Code’s standard 60 day timetable from the issue of the Offer Document. For lightly or non-regulated businesses 60 days to complete the takeover is achievable. For heavily regulated industries in multiple jurisdictions it is not, which is why from the start the Offer Document contemplated the suspension of the timetable. However, this was buried away in a footnote and I doubt many people would have realised this unless very familiar with these documents.

You can reverse your acceptance (this is set out in the Offer Document) but I expect your broker will try to apply a charge to do so and you may have a bit of a battle with them (as I have sometimes found Corporate Actions teams surprisingly lacking in knowledge on key issues).

Well it might be some good(ish) news. If the results are bad then SYM delays as long as possible to announce. The interims are a bit early this year. As there have been no announcements of new customers we must assume that if things have got a bit better it is from the existing customer base.

Newdealz

I assume this is the original corporate action notification. It is worth going back to the timetable suspension announcement (link below). The last date for voting is the Unconditional Date (Day 60) which is anticipated to be in Q1 2025. In fact there is an additional 14 days beyond that and whatever happens 14 days notice (by RNS/IDS website) will be given of the last day to vote.

If you take no action there is no default voting position. It is simply that you will be deemed to have not accepted. And yes if the deal goes through but does not get to 90% for compulsory squeeze out of the shareholder holdouts you will be left with untradeable shares. So there is no advantage accepting early but equally people have to make a decision.

https://www.lse.co.uk/rns/IDS/update-on-offer-timetable-m1mk4x8n67nn39k.html

You have effectively “sold” your shares to DK and your shares are now in escrow which is why Halifax have removed them from your holdings. It is a little more complicated than that as he is yet to pay you and so you get the final 2p dividend (paid end September based on end August xd) and you can reverse your acceptance. However, Halifax will no doubt levy a charge.

In my view the communications are misleading in urging shareholders to accept as soon as possible. There is no upside in doing so because, as you say, you cannot trade the shares and if DK does not get enough acceptances you have not made a firm sale (as Dowsie says you get your shares back).

Shrewsbury - did you accept the offer?

Along with the bid timetable the weekly acceptance updates are suspended. They will only resume when/if all regulatory and anti trust clearances are received and the timetable restarted. This is not likely for a few months - into Q1 2025, but conceivably before.

To clarify. DK’s offer has not gone away. It is merely that the standard deadlines set by the UK Takeover Panel’s rules have now been pushed back - almost certainly for a number of months. This suspension of the timetable was envisaged in the original Offer Document (and would have been agreed by the Panel) and so should be no surprise. The reason is that it was never going to be possible to get the antitrust and regulatory clearances in the standard regulatory timetable. The close of business update RNS yesterday is more helpful than the first RNS on the suspension of the timetable. It is rather odd that they did not just send out one comprehensive RNS at the end of the day.

So the acceptance deadline has gone back to a new unknown date, being probably in early Q1 2025. There is no advantage in accepting early. However, equally, for this form of takeover you have to make an eventual decision and it pays to monitor RNS announcements.

DK cannot just back out of his takeover offer. Once an offer is put in the Panel requires it to be seen through to acceptance or rejection. An offer can be dropped for an adverse event of “material significance”. In this takeover that is probably only if the deal is blocked on NSI grounds or conditions are placed on DK significantly in excess of the undertakings he has already said he will give. Material significance is a difficult test to meet.

The Thursday updates on acceptances have also been suspended.

The RNS notification includes any parties acting in concert with Bidco. Of course it is possible that there are some that have not been declared but I would be rather doubtful for this type of stock where most of it, outside retail, is held by reputable mainstream institutions many of which are operating FTSE 250 tracker funds (which is why every day the RNS feed is swamped with their Form 8.3s reflecting their daily rebalancing to be in line with the FTSE 250).

In fact, the Takeover Panel devotes a reasonable amount of effort to try and identify and deal with undisclosed concert parties. Quite how successful they are is difficult to determine. However, the penalty for anyone involved is quite severe. You get “cold shouldered” by the Panel ie you cannot be involved in City deals for a certain amount of time. Ten people had this done to them the other day (although it took around ten years for the sanction to be applied). The big organisations simply don’t risk that and they have vast compliance departments to stop that sort of behaviour. Where it happens is at the smaller end of the market.