Member Info for Meconopsis

"If D S Smith shareholders are given share in Mondi, that's a take over. If shareholders of each get shares in a new entity , that's a merger."

My view is that if the board of directors of the resulting company is mainly ex-Mondi BoD then it's a takeover. If it's more evenly matched then it's a merger.

Look at the proposed "merger" of BDEV and RDW. Only one exec and two non-execs from RDW make it into the new board or directors. It's a takeover.

Mondi talks about a "combination" :)

SMDS market cap is £4b (ish); Mondi is £6b (ish).

Morningstar suggests that SMDS is trading on a 16% discount to fair value vs 2% for Mondi.

That would appear to cap any premium for an all share merger at 20-25%. You'd expect a higher premium if it was a cash offer.

Thoughts?

It's worth having a look through them. At least one new short position. LOTs of corporate to-ing and fro-ing.

No worries FangKat - I suspect that we were writing at the same time.

Absolutely no offence taken nick2723.

"The dealer sells the car, making his money, and then the customer chats with CBG to get alone to pay for the car. This makes CBG liable for mis-selling, as they did not offer them the cheapest deal."

Not quite.

The customer goes to the dealer who acts as a credit broker for the finance company (CBG, Black Horse Finance, etc).

The customer asks for finance and they've got three options:

- 2% APR and the dealer gets a £500 introduction fee

- 4% APR and the dealer gets the £500 introduction fee plus (say) 1.5% of the additional 2% APR

- 6% APR and the dealer gets the £500 introduction fee plus (say) 3% of the additional 4% APR

Because the customer seems like they can afford it, but aren't flush, the salesman opts to provide an illustration at 4% APR. The customer is happy with the quote.

No mention is made that other interest rates were ever available.

The customer signs up for credit using paperwork provided by the finance company.

The introduction fee is fine and doesn't need to be disclosed. It's a flat fee and a cost of doing business.

BUT, the additional 2% adds, say, £2,000 to the repayments of which £1,500 goes to the dealer. The consumer credit act says that that commission must be disclosed as it affects the loan repayments.

It's all on the finance company paper. The finance company has the duty to disclose.

The point is that the customer wasn't made aware of all of the options and that a better value option was available.

IF the finance company had declared that £1,500 of your repayments are going to the dealer as commission then that would have been ok.

Hope that makes sense.

Https://www.lse.co.uk/rns/SMDS/statement-regarding-possible-all-share-combination-with-ds-smith-plc-uvgso56ka633xbz.html

I understand your point about brand Krustysmegma.

It probably helps that they've already got experience of working with the three brands together on site. What customers see as branding will count more than corporate ownership. Few will care that it's the same corporate entity. For example, people don't seem to struggle with Skoda / Volkswagen / Audi being one and the same.

FangKat - the way the discretionary commission worked is that there was generally a base rate where the dealer got an introduction payment, but no cut of the interest payment.

The value of that introduction payment didn't need to be disclosed because it was a flat fee and had no interest on the APR paid.

If the dealer used one of the higher interest rates then they kept some or all of the additional bit. The value of that bit should have been disclosed as it was a direct component of the APR.

nick2723 - why CBG and not the dealer? Because the contract was between the finance company and the customer - not the customer and the dealer.

It's important to say that I'm not agreeing/disagreeing on the rights or wrongs - just reporting the basis of the Ombudsman decisions, which are worth reading.

It's worth noting that CBG are one of the smaller players. The three big players are Lloyds, Santander and Barclays. All of whom will be fighting the corner of minimising payouts.

FangKat - I agree.

It wasn't illegal to have different interest rates.

But there was a requirement to disclose the value of commission payments. The finance companies cop the compensation as it was them paying the commission and so they had the requirement to disclose it.

Where the value of the commission payment was disclosed then there is no case to answer. Some finance companies did disclose the value of commissions.

krustysmegma - it's well worth reading the analyst presentation deck at https://investors.redrowplc.co.uk/sites/redrow-ir/files/offer-for-redrow/presentation-recommended-combination-of-barratt-developments-and-redrow.pdf

their argument is:

- cost savings through synergies - half of which look to be low hanging fruit based on the expectation that they'll achieve them within a year

- take redrow brand into scotland and onto more sites - this gives a bigger range of home types and price points on each site

the latter point is an interesting one. where they've had both brands on a single site then they believe that planning permission was easier to obtain and both brands sold homes more quickly. i'm presuming that it's because it reduces the ****genisation of the site.

as i say, the deck is worth a read.

it must be said that if you care about immediate capital value and income then it sucks in the short term.

"Martin Lewis: £13 billion could be paid out over car mis-selling

BBB report that money so with so many peoples will take complaints so quickly go up as there is no one dont like money . Letting this into trouble as more and more people aware now ."

It's important to moderate the Martin Lewis headline with the fact that he's stated a range of outcomes like customers being fully reimbursed for the whole loan or the whole interest amount.

Neither of which is where the relevant Ombudsman rulings landed, which was that the customers:

- had the car, so have to pay the value of the car

- chose to take financing, so have to pay interest

In both cases, the compensation was to pay the difference between the interest rate paid and the lowest rate available at the same car dealer - plus 8% per annum.

This ISN'T the same as PPI mis-selling where the whole premium was returned. In those cases people were sold products that they didn't need or would never be able to claim against.

In this case, they got a car they wanted, paying in a way they preferred.

I know others here question why compensation is due.

Yes, customers were offered a deal that they knowingly took - at a time where the offering different interest rates wasn't outlawed as it is now.

But, the issue is that the value of the commission payments wasn't disclosed to the customer. Had it been disclosed then the Ombudsman argues that customers were likely to have sought to haggle on price / rate.

In truth, I don't understand all the negativity here. And the reaction here certainly doesn't reflect the wider analysis in the market, which has broadly

I thought the results showed "steady as she goes" competence by the Board. Yes, profits and the dividend are down, but that's to be expected at this point in the cycle. Cash conserved. Headcount down 10% through a hiring freeze, which controls costs without destroying morale.

We'll have to wait until the end of Feb before we see what PSN and TW do in terms of dividends, but I'd be amazed (and actually distressed) if they don't similarly cut dividends by around 50%.

I think the merger is a shrewd move. Prior to the announcement:

- BDEV had a market capitalisation of £5.5bn against net assets of £5.4bn, of which the land bank is £3bn - so BDEV were trading at par with NAV

- RDW had a market capitalisation of £2bn against net assets of £2.9bn, of which the land bank is £1.6bn - so RDW were trading at a 30% discount to NAV

By proposing a merger with Redrow and making the offer all share the Board is calling the bottom of the market cycle. Rather than taking over a basket case like Crest which will take years to come right; it's proposing to merge with a competitor that it's already worked with, with complimentary market offerings and where co-branded sites have had better sell though than single-brand sites.

The all share nature of the deal preserves capital in the business and we end up with a company with net assets of £8.3bn of which there's £850m of cash and a land bank of £4.6bn. That land bank value is a "bottom of the cycle" valuation - so will improve as the market ticks up.

The immediate downside is that the combined market capitalisation has dropped to Redrow's discount. On the basis that the stock market appeared to trust BDEV's Board over RDW's then I suspect that the discount will get priced out once the merger happens - although still subject to both shareholder votes and Competition and Markets Authority approval. But I'm relaxed about that.

I also realise that I'm in a TINY minority here :)

@buller...

@Krustysmegma is correct that a lower dividend cover pays out more of the earnings. @Krustysmegma is incorrect is adding a % sign to the dividend cover number - it's a ratio, not a %

So, if Barratt made £100m then dividend cover of:

- 2.5 results in a dividend payout of £40m to shareholders

- 2.25 results in a dividend payout of £44.4m to shareholders

- 2.0 results in a dividend payout of £50m to shareholders

- 1.75 results in a dividend payout of £57.1m to shareholders

Barratt have announced a while ago a plan to reduce dividend cover (i.e. increase capital returns to shareholders) from a dividend policy of 2.5 dividend cover in increments of 0.25. Someone here will be able to remember where they were targeting (I seem to remember 1.5, but I might be wrong).

The reason for the policy was that the company was accumulating more capital than it could usefully deploy.

Nice to see you backing all of that with facts @causal ;)

“Why would there be a dividend cut. The company still has the money and this is just rumours and speculation.”

The Board will need to provision for likely compensation, which will reduce distributable profits. That there will be an enforced, industry-wide compensation scheme is near inevitable based FCA rulings and subsequent review.

“I was looking thru an old trading report in persimmons office and it was from 2014 and they made about £380m profit that year and paid a dividend of £1.10. So they are in better profit and will be under paying from that year based on my expectations.”

I welcome other’s views on this, but am not sure if we can read across based on headline profit numbers. In 2014 the company was actively pursuing a policy of returning capital to shareholders and had an extremely strong balance sheet. That balance sheet isn’t as strong now.

I am happy to be wrong on this and pleasantly surprised ;)

@Christofer - if you can't see the funny side of any sudden drop then you've invested more than you can afford to lose and - by definition - have over-extended yourself.

If you can't see the funny side then investing in individual shares ain't for you.

*DUH*

It must be said that it’s a stinking trading update and, in a better market, would have surely been worth 10% on the share price.

Ho hum. Let’s all feel smug when “the others” find out about PHNX.

AbjectPerformer - you appear to be doing really well ;)

A couple of important things about your workplace pension:

- the default fund is seldom very good and usually over cautious - many are over-focused on the UK (in a bad way)

- the range of funds often focuses on lifestyling - switching from stocks to bonds as you approach retirement on the assumption that you’ll buy an annuity.

It’s important to remember that you can part transfer out your workplace pension into a SIPP and remain in the workplace pension

When I worked at L&G they didn’t make their tech fund available within the staff pension scheme. So every year, I’d transfer out most of the previous year’s contributions into HL and invest in the fund there.