CRH Rights Issue explained

Brendan Burgess

Brendan Burgess

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The rights issue allows someone who holds 7 shares to buy 2 new shares for €8.40 each

So if you have 7 shares today, the value of your holding is:

7 shares at today's price €15 = €105
7 dividends due @0.58= €4
2 nil paid rights @ 6.60= €13
Total value €122

Shares bought up to Tuesday were sold cum rights.
Shares sold since yesterday, were sold ex rights.
The 7 shares are cum dividend.
The new shares won't have a dividend.

Am I double counting the dividend here? When the share goes ex-dividend, it should fall in value by €0.58.

Price of shares
You can get the prices on the ISE websiteThis is not speculation about prices, just a discussion of the mechanics.

The cum rights shares were last dealt in at €15.50 on the 3rd March.
The following day the rights per share were worth €2 (€7.23 x 2/7)
So all else being equal, the ex-rights share should have dropped to €13.50.
In fact, it rose to €16.20

So the value of a person's holding rose by 20%.
 
If you want to buy CRH shares, it doesn't matter if you buy the rights or the shares.

Share price now: 14.65
Less dividend: €0.58
Less cost of new shares: 8.40
theoretical rights price: 5.67

The rights are trading at €5.80

I suppose you will pay income tax on the dividend which explains the difference.
 
The general volatility of shares these days make such calculations a lot less relevant.

The ex rights share should have dropped significantly in value, but it rose.

Brendan
 
When I buy these rights issue shares can I sell them at the normal market price ?
 
claragh..yes you can; when the rights issue is finalised. You will find though that when all the new shares hit the market the share price will collapse, so you will not have an opportunity to make a huge profit if you sell the shares. If it was that simple lots of people would do the same thing.
 
Brenden,

I was just going through the figures there to figure out what the share price should adjust to. This is what I got:
Current outstanding 531.8 (There are many exact figs floating around so rounded off)
Mkt value 531.8*15.02 (share price of €15.50 - .48 dividend) = 7987.6
Mkt value of Rights issue 152*8.40 (RI price) = 1276.8
Total new mkt value = 9264.4

New total shares outstanding = 683.8

Therefore all things being equal the new share price should be the sum of:
Total new mkt value / Total new shares outstanding
9264.4 / 683.8 = 13.55

So, one could reasonably expect the value of the share price to fall to €13.55 to reflect outcome of rights issue?
Obviously this might not happen but given the Share price and dividends above this would be fair value?

Do I have this right?
 
Today's prices are

CRH PLC 13.44
CRH NEW ORDINARY NIL PAID 4.53

So if I accept the rights issue does this mean that I'm paying 8.40 for a share that's trading at 4.53?
 
No, you are paying €4.53 for the right to
buy a share at €8.40

So a share will cost you €12.93

Alternatively, you can buy a cum-dividend share in the market today at €13.44
Strip out the dividend of 0.58,
and it is really costing you €12.86

Brendan
 
I still don't understand much of this. If I simply do nothing am I losing out in some way by not taking up the offer of shares at a reduced price
 
In terms of the mechanics, is there any difference between these -
- Option 1, taking up the rights; followed by selling immediately
- Option 5 (Doing nothing), and getting a cheque if the current share price is greater than the issue price.

Obviously there is more effort involved in Option 1, but apart from that are these two basically the same?

Thanks
 
I haven't received anything from my broker (NIB) about this. Should I have received a prospectus etc by now. Isn't the closing date next week?
 
you should have gotten a letter from nib by now as you have to have replied by march 13 ring nib on 014843500
 
donncha said:
In terms of the mechanics, is there any difference between these -
- Option 1, taking up the rights; followed by selling immediately
- Option 5 (Doing nothing), and getting a cheque if the current share price is greater than the issue price.

Obviously there is more effort involved in Option 1, but apart from that are these two basically the same?

Thanks
Click to expand...


Interested in thoughts on this also if anybody can shed any light!
 
cautious said:
I still don't understand much of this. If I simply do nothing am I losing out in some way by not taking up the offer of shares at a reduced price
Click to expand...

If you have 7 shares in CRH at the moment, they are worth €105 in total (7 x €15 - the price used in the first post for simplicity)

You can buy 2 new shares for €8.40 each.

If you do nothing, then CRH will offer the new shares to the market on the final day. The market should pay €15 each for them or €30. CRH will deduct the rights price of €16.80 and pay you over €10.20.

So you have to either
Increase your investment in CRH - buy buying new shares
or
Reduce your investment in CRH - buy doing nothing.

If you want to maintain the absolute value of your investment, you can do nothing and use the money received from CRH to buy new CRH shares in the market at €15.

Brendan
 
No, you are paying €4.53 for the right to
buy a share at €8.40

So a share will cost you €12.93

Alternatively, you can buy a cum-dividend share in the market today at €13.44
Strip out the dividend of 0.58,
and it is really costing you €12.86

Brendan


Hang on a minute. I don't understand this €4.53. I received a Provisional Allotment Letter with application form at the back and there is no mention anywhere of the €4.53 anywhere. I understood from this letter that I just send back a cheque for the amount as specified in Box 3 in my case and that was it - extra share popping my way then.

Also does anyone know the indebitness of this company? Why are they raising money? Is it just to pay off a debt or are they hoping to cash in the proposed US roadbuilding scheme which may or may not take off.

-M
 
Brendan said:
If you do nothing, then CRH will offer the new shares to the market on the final day. The market should pay €15 each for them or €30. CRH will deduct the rights price of €16.80 and pay you over €10.20.

So you have to either
Increase your investment in CRH - buy buying new shares
or
Reduce your investment in CRH - buy doing nothing.

If you want to maintain the absolute value of your investment, you can do nothing and use the money received from CRH to buy new CRH shares in the market at €15.

Brendan
Click to expand...

Thanks for info Brendan. Just a quick question about any possible payment if i decide to do nothing -

My Rights Issue letter from DAVY states that:
"Option 2 - Take no action
The nil paid shares will lapse. If you let the shares lapse, the company may sell the shares in the market and you may be entitled to a cash payment in relation to 'lapsed rights proceeds'. This will be at the discretion of the Company and may be zero."

Are they simply covering themselves here ? i.e. I and other shareholders will most likely receive a payment at some level in respect of the forgone rights issue shares should we decide to do nothing?

Any info appreciated.
Cheers.
 
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