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I don't think it's fair either, but it is the way Halifax do it, and some other banks from what I've read previously on here.
It does actually state that they do on their website:
"UK listed shares paying US sourced dividends
In most cases when you complete a W-8BEN form you will only pay the 15% Withholding Tax rate instead of 30% on US listed shares paying US sourced dividends. For UK listed shares paying US sourced dividends a 30% Withholding Tax rate is applied even if you have a W-8BEN form in place."
Not sure why they have this stance when other brokers seem to be able to reduce the tax applicable in an ISA.
Andy,
I believe £9.35 is the minimum "Tender Price", so the average minimum market price in the qualifying period is £8.90.
Could still drop below that though, so as you say, may not go ahead anyway.
"The purchase price to be paid by the Company in the Tender Offer will be 105% of the average market value per Share for the five business days immediately preceding 27 March 2024, being the expected date on which the Shares are to be purchased (the "Tender Price") and will be announced by the Company via a Regulatory Information Service on the date preceding the closing date, expected to be 26 March 2024"
Andy,
In my example £10.00 was the "tender price", the qualifying share price would have been £9.52 (ie £9.52 + 5% = £10.00).
I believe the number of shares "sold" will be the number that is attained by dividing your dividend entitlement (£680) by the tender price, not the qualifying share price.
If I was given £10.50 per share then I would receive a total of £714, not £680. This is not correct as it clearly states you receive the same as your dividend entitlement whatever you choose to do. Otherwise a 100% take up would cost $44.1m and not $42m.
I agree that if the qualifying share price is £10.00 then the tender price will be £10.50, but in that case DEC would still only use my waived entitlement of £680 to buy some of my shares, so £680 / £10.50 = 64.76. In this instance they would cancel 64 shares, not 68.
I think we broadly agree on everything else.
Jun_man
Hallelujah
At last the message might get through. The key bit being:
"You’ll receive approximately the same amount of cash as you would have received via the dividend, but your holding will be reduced by a number of shares."
In fact, it is precisely because you get the same amount back whether or not you tender that has had me doubting my own understanding. It seems ludicrous that you’ll receive approximately the same amount of cash as you would have received via the dividend, but your holding will be reduced by a number of shares.
My understanding from day 1 has been that if I have 1000 shares and do nothing I will receive £680 dividend (using £0.68 as a rough dividend per share). I will also have 1000 shares.
If I take up the tender offer in full I will receive £680 (actually probably slightly less due to rounding down as explained in the circular). I will now has 932 shares (based on tender price of £10.00).
So it is my choice as to whether I have 1000 shares plus £680, or 932 shares plus £680.
I am yet to see a valid explanation as to why I would want to go for option 2.
This appears to me to be a defacto dividend cut by stealth. The company wants to pay the dividend and also wants to complete the share buyback that was authorised, yet evidently only has the money to do one or the other. They are therefore proposing to use the money that is allocated to paying the Q3 dividend to enable them to complete the existing buyback. It is possibly semantics, but it appears that they are asking shareholders to chose between a dividend payment or a buyback, not both as we actually appeared to have before this whole thing started.
When this was first announced a poster on here suggested that we were all being urged to take one for the team, and that anyone not taking it up was being selfish. I kind of get that now. It may actually be possible to have your cake and eat it after all. If two identical shareholders decide to do nothing and fully tender respectively, the one who tenders will receive their cash entitlement but give up some shares, yet the one who does not tender will still receive their cash entitlement but also keep all their shares.
This whole thing makes no sense at all unless I have completely misunderstood it, which I don't believe I have.
Gavster,
the only part of your last post that makes sense is:
"Total amount of spend = $42m. Dividends and Tender.
Total Cost of Dividends if nobody elects to tender would be $42m (it's just under but we're rounding up)".
The rest is simply incorrect.
David,
please explain that again, because to me it makes no sense at all.
You say, "The company aren’t buying shares off shareholders, they are being bought from the broker by the company. The company will buy as your example 1 share from the broker, cancel that share, pay the average cost of that one share plus 5%."
Sticking to the earlier example of £10 per share, you are suggesting the company will pay the broker £10.50 for that share and then cancel it. Ok so far.
You t hen say, "Just to add , no shareholder will ever own the shares bought as part of the tender offer, they will only receive the monies from the sale of these shares." Here is where I'm confused, who will pay you the £10.50, the company or the broker?. The company have already given the money to the broker in exchange for the share, so they can't give it to you. The broker, who received the £10.50, presumably had to buy the share in the first place for the market rate of £10.00.
So, someone will have sold a share and now has £10.00, the broker has £0.50, the share no longer exists. Who pays you the £10.50? It is not the company because they already handed it over to the broker. It is not the broker because he only has £0.50. It certainly isn't the chap that sold the share to the broker.
Just looking at this another way. If, as you say, a person fully committing to the tender offer still retains their original holding after it is all complete, this creates the following scenario:
Using your earlier £10.00 share price and £0.68 dividend.
Ivor has 1000 shares
If he does nothing he still has 1000 shares and receives £680 cash
If he fully commits to the tender he has 1000 shares and receives £714 cash.
It would clearly be a no brainer. In fact, this is the equivalent of DEC having declared a variable dividend. They may as well have said to all shareholders "for Q3, would you like us to pay £0.68 dividend or £0.714?"
This offer is open to all shareholders, therefore it is possible (though not likely) that all shareholders fully take up the offer. It is also clearly indicated that the aim of this is to cancel as many shares as possible (i.e. the more the offer is taken up, the more shares will be cancelled).
Stating that you keep the same number of shares if you take up the tender offer is clearly wrong, because if everybody took it up, everybody would still have the same shares, yet also the maximum number of shares would have been cancelled by the company. You can't have a fixed number, subtract from it and still have the same fixed number.
David, this tender offer is certainly confusing, I have never been party to one before and am willing to admit I may have got it wrong. But while I may have got it wrong, you have certainly got it wrong.
Jun_man
agree it is a bit misleading and does rely on an understanding of what is happening. Would have been clearer to some if option was "waive all dividend", "waive part of dividend" with an option to specify a percentage to be given up.
The way Halifax, and maybe others have presented the options is correct, just possibly not as simple as it could have been.
David,
The pot is $42m not £42m, there is no discrepancy.
I don't believe DEC will return the pot + 5%. What they are doing is using any monies waived to purchase shares at a price which is "105% of the average market value per Share for the five business days immediately preceding 27 March 2024".
Using your example earlier of 1000 shares and a dividend of £0.68, I believe this is intended to work as follows:
Shareholder (Ivor) is entitled to £680.
Option to tender all the shares.
No dividend is paid to the shareholder .
The £680 is used to buy some of Ivor's shares for qualifying market price + 5%. In your example the share price was £10, purchasing 68 shares with the £680. I believe the way it will work is that they will use £680 to purchase some of Ivor's shares at £10.50 per share. Therefore will buy 64.76 shares. The RNS/Circular explains that this will be rounded down to the nearest whole share, with the difference being kept by the company, as deemed waived by Ivor. Ivor will receive slightly less than £680 as a return of capital (£672 in fact, which is £10.50 64). Ivor will have 64 shares cancelled.
So from a starting position of 1000 shares, depending on who is correct, Ivor's final position, should he fully take up the tender is as follows:
Your way - Ivor holds 1000 shares in DEC and has received £714 in cash.
My way - Ivor holds 936 shares in DEC and has received £672 in cash.
We may both be wrong, only time will tell.
As I commented to Gavster earlier, my way does not seem to stack up, but it is what the offer suggests.
David,
this makes no sense at all.
From your example: if they use the £680 they were going to give you as a dividend, where do they then get the £714 to pay you for taking part in the tender.
Whose shares are they buying?
Let's assume a 100% take up on this tender offer. Let's also simplify it so that the whole of the DEC shareholding is made up of individuals/institutions that own 1000 shares.
In your example this would mean the whole $42m is used to purchase shares. It would mean that DEC uses everyone's £680 to purchase shares (a total of $42m, the dividend pot). It would also mean that they have to pay each person a cash amount of £714 (£680 + 5%), therefore a total further cost of $44.1m ($42m + 5%). Where does this come from?
You say the company buys 68 shares for each of these £680 dividends given up. You also say that following the transaction, the person in your example still has 1000 shares. If we carry on the example of a 100% take up of the tender offer, everyone would still have their 1000 shares, yet DEC would have purchased 68 shares with everyone's entitlement. Where would they have purchased them?
We also know that DEC intends to cancel the shares purchased. Therefore, each of these 68 shares purchased will be cancelled. How could it possibly cancel shares, yet leave everybody with the same amount as they had before.
Gavster,
you are correct, it is pretty simple stuff, just read the RNS and circular.
You can opt to receive dividend or capital return via tender (or combination of both).
You do not receive any dividend on the shares tendered.
By waiving the dividend you are giving up your entitlement.
I fully agree that the only way it seems to stack up for shareholders is if it is as you say. However, the wording and the mechanics of it seem fairly clear to me, and therefore I don't see how it does stack up for shareholders.
We'll see how it all plays out.
Jun_man
The Halifax have got it correct, it is just people don't understand it.
They are offering the three options as per the circular: do nothing, tender all, tender part.
By tendering all, you are not selling all your shares, you are giving all your cash dividend entitlement up, which is instead used to purchase an as yet undetermined number of your shares, thus leaving you with less shares after consolidation.
If you part tender, you receive some dividend and use some to purchase shares. eg, if you had 1000 shares and ticked the part tender box, specifying 600 shares, you would receive the cash dividend on 400 shares. The dividend entitlement for the 600 shares would be used to buy some of the 600 shares.
Gavster
I think you are wrong.
In your earlier example, if everyone fully took up the tender offer, the whole $42m would be spent purchasing shares. So the 44.08m shares remaining (assuming full tender take up) will not as you say require a dividend, because the owners of those shares opted to WAIVE it. i.e. sell some shares in lieu of the cash.
This is costing DEC $42m full stop.
If I have got it wrong I will happily hold my hand up.
DC,
My interpretation of this is different.
Rather than starting with the maximum number of shares authorised to purchase (3,881,238), and multiplying by the share price (£9.35), then multiplying by exchange rate to get a total dollar spend, which in your example does indeed suggest that the higher the tender price, the more the cost in dollars, I believe DEC are doing the opposite.
I believe they are allocating approximately $42m dollars to this tender offer. Based on the applicable exchange rate as set out in the timeline, this will purchase £xxxxxxx Sterling. This sum will then purchase X number of shares on the LSE.
Rather than the Dollar cost fluctuating, I believe it is the number of shares that are purchased and cancelled that will fluctuate, based on 105% of the share price in the qualifying period.
So rather than "The higher the 5 day average is above the minimum £8.90, the bigger the discrepancy gets!", I believe the case is the higher the 5 day average is above the minimum £8.90, the fewer shares can be purchased and cancelled.
At least, that's my understanding.
Hoarder,
if you opt to tender all your shares, your entire holding will not be bought from you, only the number of shares required to make up the equivalent amount of dividend you were entitled to will be bought from you.
If it were possible for all you shares to be bought from you then you would be receiving a cash amount far in excess of your dividend entitlement.
DC,
I must admit, it's confusing me too.
I'm fairly sure it will only be costing DEC $42m in total. The fact that it states you can "elect to WAIVE some or all of their entitlement" makes it appear clear to me that "Ivor" in the previous example has an entitlement of approx £700.00 from his 1000 DEC shares. He will receive £700.00 (and only £700.00) either as dividend, as capital return should he fully take up the tender, or as a split of the two). But the clear thing is that he will receive the same £700 whatever he does.
This seems to be confirmed in the following wording "This Return of Capital allows shareholders to be paid the same total amount of the previously declared Third Quarter Dividend while providing optionality for shareholders to receive that payment in the form of a cash dividend payment or a cash payment as consideration for the sale of their Shares in the Tender Offer."
However, like you, I am scratching my head wondering how this stacks up.
Let's take the Ivor example and give him a friend called Gareth. Gareth also owns 1000 DEC shares.
Ivor takes option 2 and tenders all his shares. Post tender he will have 928 DEC shares and £700 cash (received as return of capital).
Gareth takes option 1 and receives the dividend in the normal way. Post tender he will still have 1000 DEC shares and also £700 cash (ignore all the 15/30% WHT / W8-BEN debate).
I understand that in theory, once all the tendered shares are cancelled, the share price should increase to the extent that Ivor's remaining 928 shares are worth the same as his 1000 shares were, thus he has gained the £700 cash. But Gareth's shares will also have gone up by the same amount as Ivor's, thus he will have an increased capital amount, as well as the £700 in hand.
It only seems to work if dividends are paid on the "remaining" shares, and costs almost double the $42m. But this is not what the circular states. It is clear that it is costing $42m in total, and that shareholders will receive the same amount whatever they chose, it is only the way in which they receive it that is optional.
DC,
This will not cost DEC more than approx $42m.
The options are:
• elect to do nothing, and such Shareholders will be paid their Entitlement to the Q323 Dividend on 28 March 2024;
or
• waive some or all of their Entitlement in consideration for the ability to tender their Shares in the Tender Offer for purchase to receive cash in consideration of such purchase, up to their waived Entitlement."
With the important word in option 2 being "waive". Anyone taking up the tender offer IN FULL will not receive a penny in dividends, they will get their equivalent dividend entitlement as a return of capital, and subsequent reduction in share holding.
For example, lets assume the $0.875c dividend equates to £0.70p, and the share price is £9.35.
If you hold 1000 DEC shares you can do nothing and take your dividend as normal. You will receive £700.00 gross (individuals' tax arrangements will affect the net amount).
If you tender the full amount you will receive £700.00 as a capital return. Shares up to the value of £700 will be purchased from you at share price + 5% (in this example £9.35 + 5% = £9.82). Therefore £700 / £9.82 = approx 71 shares. So you will receive £700.00 and be left with 929 shares. There will be no dividend payable on these remaining shares as you have already received it as a return of capital.
Alternatively, if you tender half the shares. 500 shares will receive the dividend, so £350.00 in cash, the other £350.00 will be paid as a return of capital and DEC will purchase 35.5 shares from your 500 shares tendered (£350.00 / £9.82), lets round it to 36 shares. You will have received a total of £700.00 and be left with 964 shares. You received cash dividends for 500 of those shares and return of capita in respect of the 500 you tendered. There will be no cash dividend on the 436 shares remaining of the 500 you tendered.
At least that is my understanding.
I'm not a huge shareholder here, and in the interest of transparency decided on the "do nothing" option.
That reply was meant for coaj.
Basically you cannot have your cake and eat it.
I think you're wrong, it's either/or.
DEC are paying out $42m for the quarterly dividend.
Depending on the take up of the tender, that will either be £42m in cash , no shares purchased, no capital returned (ie, no-one takes the tender option).
$0 paid in cash with $42m returned as capital close to 3 million shares purchased and cancelled.
Any combination in between.
The total paid out by DEC will be $42m in some combination of cash dividend / capital return, with X number of shares being purchased and cancelled.
Jun_Man,
again there is an error in your example 2.
If you tender you don't get the dividend on the remaining 622 shares. You get zero dividend. You only get the £465 from the 52 shares sold.
If the share price remains at £8.5 as per your example, then effectively you've received nothing, simply sold a few shares.
The expected effect of the tender is that the share price rises as a result of there being 7% ish less shares in issue, and that the value of your 622 shares will have the same value as the 674 you previously had, plus you will have received £465 as a return of capital.
What DEC can't mitigate for is the actual share price both at the time of tender or afterwards. That's why it's difficult to predict which is the best option.
10000p would be very welcome!