Member Info for Poleaxe

I think the rump of shares not subscribed to will get placed tomorrow, perhaps around 16p, leaving little in the way of proceeds for the lasped rights. If they can't get them away over 15p the underwriters may have to take a hit?

Perhaps a heavily discounted rights issue does encourage more holders to take it up, but that's a bit misguided IMO. If shareholders are prepared to subscribe for the rights it doesn't matter what the discount is. To raise a given sum (e.g. £550m) it's going to cost shareholders the same to subscribe and they end up holding the same proportion of the company, whatever the discount. e.g. it could have been 10 for 1 at 36p per share.

I think it's the underwriters risk aversion that mostly determines the righths price - they want to collect their fees for minimal risk.

Won't anyone short the HMON who is 'taken up against' receive the 15p per HMON? In which case, they're only embrassed to the extent of HMSO - 15p? Basically similar to the lapsed rights proceeds, which I can't imagine will be phenomenal!

You don't have to return 24x times more shares to the holder if you are simply short HMSO. e.g. you shorted HMSO as an arbitrage after they went ex-rights.

If you were short HMSO at close on 8th Sept (day before ex) then you will also be short 24xHMON.

But to net off the short in HMSO you only need to take up the same number of HMON rights.

Alexios, you've also got a strange idea. Where does "1HMSO = 24HMON" come from?

One HMON grants you the right to pay 15p to have it converted to HMSO. In other words:-

HMSO = HMON + 15p

That's not the same as 1HMSO = 24HMON by any means!

Alexios, I'm not mixing it up at all

There are currently 153,258,722 HMSO shares in issue
There are 3,678,209,328 HMON shares in issue (24x the number of HMSO)

Even if 100% of the HMSO shares in issue were shorted you'd only need to take up 1/24th the number of HMON rights shares in issue to close.

Even if 20% of the HMSO were shorted to would only need the about 0.8% of the rights to be taken up to close.

Besides, many traders will have closed a few days ago, when the HMSO/HMON difference dipped below 15p, making it cheaper to trade out that take up the rights.

Plus the HMSO became unborrowable for many in recent days and even existing short positions were being called in yesterday.

goinglarge, you shouldn't think of the rights only costing you 15p. When you opted to take up the rights at 15p you gave up the opportunity to sell the nil paid rights at 9p or more.

Volume will be mostly due to the FTSE demotion. There were similar percentage volumes in other companies in the reshuffle. e.g. ITV.

On those figures, yes a 49% drop.

That was a decent guess. 104m shares uncrossed in the closing auction.

I think you're right. It could all get a bit wobbly around close?

Don't forget, it's the last day in the FTSE 100 for ITV tomorrow (Friday). Expect to see a bit of volume as index funds juggle their weightings. We might see around 100m shares uncrossing in the closing auction.

I agree heha, it may be best to wait until the end of the month before considering buying. There are always some who sell as soon as they receive their new shares, on the basis (misguided in my view) that they're in profit from 15p.

In simple terms, a HMON nil paid rights share can be 'upgraded' to an HMSO share by paying 15p. If you don't have the cash, you could sell some of your HMON shares to help fund it. People call this tail swallowing. I'm in no position to advise on whether or not this is the best thing to do in your circumstances.

If you do nothing the HMON rights shares will laspe (these are the nil paid shares). As long as you hold them as shares (as opposed to spread bet / CFD) then in 2-3 weeks from now you should receive proceeds from the placing of the rights that weren't taken up (the 'rump'). You may well get a better price by selling them before then, but that depends on market movements.

Unless you act you will not receive any more HMSO shares, just this cash from the rump placing.

You really need to be getting proper guidance on this from your broker, not from weirdos on bulletin boards!

You'd short HMSO to arbitrage against the HMON nil paid shares, which you can buy for about 17p less than you can sell HMSO. In a couple of weeks you can close the short by taking up the rights at 15p.

It's hardly surprising shorts are increasing, given HMSO has been trading 16p-17p above the nil paid rights. What's that about?

This morning it's been possible for traders to arb nearly 2p out of HMON/HMSO. If too many play that game perhaps shorts could be called in on HMSO, which would cause a short squeeze on HMSO.

HeresHopin, looking at the differential between HMON and HMSO, HMON clearly look the better buy at the moment. You pay less stamp duty that way too.

I wouldn't say they're lower risk though. They're about 3x the gearing of HMSO and would be worth zero if HMSO fall to 15p.