How does CPL's tender offer work?

Brendan Burgess

Brendan Burgess

Founder
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I have shares in CPl and they have announced a tender offer which is described by Davys as follows:

The Board is proposing to return up to €20m of cash to its shareholders by means of a tender offer at a proposed price of €3 per share, which is a c.20% premium to the September 13th 2011 closing price. CPL intends to purchase, in aggregate, up to 6,666,666 ordinary shares from shareholders at the tender price, and it is the company's intention to cancel these ordinary shares. Each shareholder will have a guaranteed entitlement to participate in the tender offer. Those shareholders who do not wish to participate in the tender offer can retain their full existing investment in the company. Each of the directors and concert parties has irrevocably committed to participate in the tender offer on a pro rata basis. Further details are expected at the announcement of the EGM.
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So the company buys shares from its shareholders at €3 per share.
It then cancels the shares.

It's sort of a reverse rights issue. In a rights issue you get to buy shares cheaply. In a tender offer, you get to sell shares at a higher price than they are worth.

Here are my calculations of the theoretical ex Tender price (Note: Original example edited with the actual figures)

|shares|price per share |total
Today| 100 |€2.70 |€270
Sell|18 |€3|€54
Shares left|82|€2.63(216/82)| €216
After the sale, I will have

Cash|€54
Shares|€216
Total|€270
Theoretically, the share price should fall to €2.63 after the tender offer.

If I want to keep all my shares in CPL, then I should sell as many as possible at €3 each and buy them back at €2.63.

The right thing to do is to take up the tender
I can sell the shares at €3 each and buy back again at the ex-tender price later.

I presume that the proceeds are just subject to CGT as with any normal share sale?
 
I see this as a clever way to return 20M euro to shareholders but avoiding income tax for shareholders. Additionally as the share price was higher prior to 2008 long term shareholders may have no capital gain.
Similar to the way Grafton used to issue special shares to each shareholder and simultaneously buy them back and cancel them instead of dividends.
 
Details have been posted out

TENDER OFFER TIMETABLE


The expected timetable is as follows:


Tender Offer opens for acceptance
3 October 2011


Extraordinary General Meeting
3.15 p.m. on 27 October 2011


Latest time and date for receipt of Tender Forms and TTE instructions from CREST in relation to the Tender Offer
11.00 a.m. on 1 November 2011


The Tender Offer is being made to Qualifying Shareholders on the register of members of the Company at 5.00 p.m. on 1 November 2011 and in respect of their Ordinary Shares held at that time.

Announcement of results of the Tender Offer
by 8.00 a.m. on 2 November 2011


Each Qualifying Shareholder will be entitled to sell up to approximately 17.915 per cent. of the Ordinary Shares registered in his name on the Record Date under the Tender Offer, rounded down to the nearest whole number of Ordinary Shares. Qualifying Shareholders may sell more than their Guaranteed Entitlement to the extent that other Qualifying Shareholders tender less than their Guaranteed Entitlement.
· If the aggregate purchase price of all Ordinary Shares tendered is €20 million or less, all Ordinary Shares validly tendered will be accepted and purchased at the Tender Price, subject to the receipt of valid tenders in respect of at least 5,000,000 Ordinary Shares.

· However, if the aggregate value of all validly tendered Ordinary Shares exceeds €20 million, not all of the Ordinary Shares validly tendered will be accepted and purchased. In these circumstances, the number of Ordinary Shares which will be accepted and purchased will be calculated as follows:

(i) all Ordinary Shares validly tendered by Qualifying Shareholders up to their respective Guaranteed
Entitlements will be accepted and purchased in full; and

(ii) all Ordinary Shares tendered by Qualifying Shareholders in excess of their Guaranteed
Entitlements, will be scaled down pro rata to the total number of such Ordinary Shares tendered in excess of the aggregate Guaranteed Entitlement, such that the total cost of Ordinary Shares purchased pursuant to the Tender Offer does not exceed €20 million;

· All of the Directors who hold Ordinary Shares will be tendering Ordinary Shares on a pro rata basis as set out in the EGM Circular.

Ordinary Shares not validly tendered will not be purchased. Ordinary Shares purchased pursuant to the Tender Offer will be purchased free of commissions and dealing charges.

Ordinary Shares successfully tendered under the Tender Offer will be purchased by the Company and subsequently cancelled and will not rank for any future dividends. However, the final dividend of 2.5 cent per Ordinary Share will, subject to its approval at the Annual General Meeting, be paid on 14 November 2011 in respect of any Ordinary Shares successfully tendered under the Tender Offer.
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So, it seems that the correct strategy is to tender your entire shareholding.

The company will definitely buy 18% of it and you will also sell some shares above the 18%.

That is assuming, of course, that the share price on the market does not exceed 3 in the meantime. If the share price rises to above €3, there would be no advantage in selling your shares.

Brendan
 
Brendan Burgess said:
So, it seems that the correct strategy is to tender your entire shareholding.
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Let me start by saying I have no knowledge of this company, but when this kind of thing happens to one of my positions, the first thing I do is try to figure out the value of what I'm about to sell as opposed to the price! And the second thing I'll want to get is a clear understanding of why the directors are making this offer.

One thing for sure I won't be doing is selling something worth say €6 for €3, in fact if it looks good I'll adding to the position. Undoubtedly not the popular approach, but there you go.

Depending on the mechanics of the tender, you should also be aware that if the tender is not well received you could end up selling your entire position.

Jim2007
 
Thanks

I meant to work a bit more on the numbers e.g. working out the equivalent of the ex-rights price.

But if CPL offers to buy my shares for €3 and I can buy them back in the market for €2.70, then I should sell as many as possible. Even if I think that the share is worth €6.

Brendan
 
Brendan Burgess said:
But if CPL offers to buy my shares for €3 and I can buy them back in the market for €2.70, then I should sell as many as possible. Even if I think that the share is worth €6.
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Hi Brendan,

Like I said I know nothing about this company and while €2.70 is theoritically the ex-rights price there is no guarantee that the price will ever hit that level or even if it does that you will be able to get shares at that price on the day.

That is why it is important to have some idea of the value and even more importantly why the directors are taking this action. In most cases where a quoted company finds it has too much capital, it will return the funds to the shareholders in the form of a capital distribution by reducing the nominal value of the shares. In cases where the company executes a buy back, it is usually because the directors are of the opinion that the shares are undervalued and the best way they can add shareholder value is to execute a buy back. Buy backs always attract attention for value investors, value funds and so on.

Do you have the url for this company? I'd like to read the directors explanation...

Jim.
 
My take on it from a quick read is that the major shareholders see value there, but at the same time don't expect it to be reflected in the market anytime soon. But fund managers being fund managers, they need a gain sooner so they are putting on the pressure and I expect this has lead to the actions of the directors.

On the other hand, there seems to be every expectation that the price will not be impacted much by this action and given the improvements in both the P/E and dividend ratios possibly even go up somewhat, assuming they can maintain the dividend.

There is provision in the tender for the company to buy up all shares tendered in the event that the total amount tendered is less that €20m, so if you tender the lot you may find that they buy up your whole position, if it does not work out for them.

I avoid service type companies because they are very difficult to value, but at a guess I'd not be surprised if €3 turns out to be a fairly close to your valuations. But you'll have to be the judge of that one.

It sounds like you're intending to go for it, so the next issue is how much to tender, unless you're happy to sell of the whole position I'd only tender the amount you are happy to sell, just in case it goes pear shaped on them.

Jim.
 
Here are my calculations of the theoretical ex Tender price

|shares|price per share |total
Today| 100 |€2.70 |€270
Sell|18 |€3|€54
Shares left|82|€2.63(216/82)| €216
After the sale, I will have

Cash|€54
Shares|€216
Total|€270
Theoretically, the share price should fall to €2.63 after the tender offer.

If I want to keep all my shares in CPL, then I should sell as many as possible at €3 each and buy them back at €2.63.

the next issue is how much to tender, unless you're happy to sell of the whole position I'd only tender the amount you are happy to sell, just in case it goes pear shaped on them.
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I would be delighted to sell all my shares at €3 and buy them all back again at €2.63

The only thing which might go wrong is if they fail to get offers of €10m worth, in which case they will pull the offer. Then they keep their €20m cash and the share price should not change. Bizarrely this should be the opposite of a failed rights issue. This could only fail if the owners of the shares feel that €3 is not enough and push the cum-tender price up above €3 before the shares go ex-tender.

(I am making up some words here to mirror those of a rights issue)
 
I'm off to the mountains for a few days, so this will be my last post for a while....

Just one question, shareholders of record on what date qualify for the tender offer? Is it possible that the price is already gone ex-tender, otherwise the current price might offer an opportunity for some free cash.....

Jim.
 
The Tender Offer is being made to Qualifying Shareholders on the register of members of the Company at 5.00 p.m. on 1 November 2011 and in respect of their Ordinary Shares held at that time.
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Hi Jim

I don't see any opportunity to expoit anything here?

Enjoy the mountains.

Brendan
 
The closing date is Tuesday at 11 so the forms would have to be sent off today.

As the share price is 2,70 today and should drop to 2.63 on Tuesday, then it looks as if people should take up the offer and sell as many as possible.

Even if you think that the CPL shares are worth more than €3 , you should still sell them and buy them back in the market after the tender offer is finished.



Brendan
 
tyoung said:
I see this as a clever way to return 20M euro to shareholders but avoiding income tax for shareholders. Additionally as the share price was higher prior to 2008 long term shareholders may have no capital gain.
Similar to the way Grafton used to issue special shares to each shareholder and simultaneously buy them back and cancel them instead of dividends.
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If this is their objective, is there a good chance that Revenue will consider this to be a tax avoidance measure and will simply hit people with the tax bill anyway?
 
In accordance with the terms of the Tender Offer, Shareholders who validly tendered to sell less than or equal to approximately 17.915 per cent. of their shareholdings (their "Guaranteed Entitlement") will have their tender satisfied in full. Shareholders who validly tendered more than their Guaranteed Entitlement, will have their Guaranteed Entitlement satisfied in full and any Ordinary Shares tendered above their Guaranteed Entitlement will be scaled down (to the nearest whole number of Ordinary Shares) to approximately 8.679 per cent of their respective excess applications.
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So if you tendered all your shares

guaranteed entitlement|17.915%
8.679% of excess 82%|7%
Total|25%

I figure out that around 10% of total shares were not tendered for. Given that the directors account for around 50%(?) of the shares, it suggests that 20% of ordinary shareholders did not offer their shares for tender.
 
I spoke too soon. They closed today at 3 euro, the same as the tender price.

This makes no sense unless there was some other story to boost the price.

Brendan
 
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