RE: AJBell - TUI RI12 Apr 2023 01:46
FOUR OPTIONS FOR TUI INVESTORS AND THE COMPANY’S RIGHTS ISSUE
1. TAKE UP YOUR RIGHTS
Shareholders are typically offered the right to buy a set number of shares in proportion to the number they already hold. TUI is offering eight new shares at €5.55 each for every three existing TUI share held in the business as of 28 March. The official deadline to subscribe for the new shares is 17 April but for most investment platforms the actual deadline is 12 April.
Listed in Germany, TUI is traded through DIs (depositary interests) on the UK stock market. Each DI represents an entitlement to one TUI share. The subscription price in euros on the rights issue will be converted to sterling after a shareholder has elected to participate. For illustrative purposes we have used the euro/sterling exchange rate at the time of writing, which implies a subscription price of 488p.
For example, someone with 300 TUI shares would have the chance to buy 800 new shares costing £3,904 in total.
2. SELL ALL YOUR RIGHTS
The rights associated with shares in a rights issue can be traded in the market and have an intrinsic value. These are known as nil-paid shares or nil-paid rights.
Shareholders can sell their rights to someone else and receive some money, all without having to sell their existing shares.
In general, most stockbrokers do not have the capability to let you trade the rights online, so you will probably have to place an order over the phone.
To calculate the price at which the shares could trade after a rights issue, analysts seek to calculate something called the TERP or theoretical ex-rights price. This is based on a combination of the value of the existing shares at the share price before the rights issue was announced and the new shares at the subscription price.
In reality the actual share price will also be affected by what motivated the rights issue and the company’s particular circumstances at that time. In TUI’s case this is further complicated by the 30.9% holding of Russian shareholder Alexey Mordashov.
His shares are frozen due to sanctions and he cannot participate in the rights issue. As a result, the number of new shares being issued relative to existing shares is not in the 8:3 ratio you would expect based on the rights issue offer of eight new shares for every three held. We have used TUI’s own calculation of TERP which is €9.23 or 812p in sterling. Mordashov’s shareholding will drop to 10.9% after the rights issue with an effective value transfer to other shareholders.
What if you want to sell your rights? The indicative value would be the difference between the theoretical ex-rights price and the subscription price which is 324p per share in the case of TUI (812p-488p). Someone holding 300 shares would net £2,592 in cash by selling their rights (324p x 800 new shares).
3. SELLING SOME RIGHTS TO PAY FOR THE COST OF SOME NEW SHARES
An alternative is to sell some of the rights to cover the cost of some of t
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