DCC plc tender offer

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Brendan Burgess

Brendan Burgess

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Any other shareholder in DCC plc out there?

Have you found any review of the tender offer?

I will read all the documents at some stage, but if there is a steer by a stockbroker, I would read it first.

www.dcc.ie

Tender offer

Information relating to the DCC Energy's outstanding debt instruments, maturity profile, credit metrics and credit ratings.
www.dcc.ie www.dcc.ie

I am guessing that the right strategy for a small shareholder is to offer as many as possible for sale at the highest price.

Of course, that could result in a big CGT liability so it might not be the right strategy.

Note: We do not allow speculation about the price of shares. This is to discuss the tender offer only.

Brendan
 
These was my analysis of the CPL tender in 2011.

How does CPL's tender offer work?

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...
www.askaboutmoney.com

I followed my own advice, but omitted to enclose the share cert. with the documents, so my application was invalid.
 
Yes I am a DCC shareholder. Just took a quick look at it , yes I think that is a good option to offer at the highest price allowed. The share price is already at the lowest price offered anyway. However also do nothing is also a good strategy, obviously the company thinks its shares are undervalued thats why it is offering this buyback. If less shares are in circulation that should make the existing shares worth more.
 
joe sod said:
do nothing is also a good strategy,
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I haven't studied, the documentation yet, but I don't think that this is correct, unless for tax purposes.

If the share price is £50 and they strike the price at £60, you should sell as many as possible for £60.

We don't speculate about share prices but even if you think that they think that it's undervalued...

Sell 100 @ £60 for £600 and then buy back 120 @ £50. There will be a slight adjustment to the price but you get the picture.
 
Let me explain why the share price should fall if all else is equal.

Say a company has €10,000 in cash - its only asset - and 10,000 shares.
Each share is worth €1.

But it decides to return cash to shareholders and offers to buy back 2,000 shares at €1.20 each or €2,400

Now its cash position will reduce to €7,600
And it will have 8,000 shares

So each share is now worth: €0.95 each - a fall of 5%
 
It might not suit individual shareholders to sell shares as they will have a CGT liability which does not affect most of the institutional shareholders.
 
So the letter I got was from Davy - which summarised the situation but gave no advice.

The highest potential price is £53.20

The price today is £50.20 -

So that would be a premium of £3 per share

Say you bought the shares at £23.20

The CGT , ignoring the annual exemption would be:
Sale price: £53.2
Cost £23.20
Capital Gain: £30
CGT: £10

So you are paying £10 to get £3 more than the market value.

If you are a long term buy and hold shareholder, that does not seem like good value.

If you might be selling your shares anyway, it's worth doing.

These calculations are based on the share price as of 2nd December. I must notify Davy on 11 December, so I will revisit it then. If the share price has fallen, then it would be more attractive. If the share price has risen, it would become less attractive.
 
Yes that is my thinking aswell, it's not worth going for. Still it's a good sign that the company is looking to buy back shares even if its on the cheap. What is stopping them from just going into the market and buying them that way though?
 
If a buyer appears on the market with £600m to spend, the price goes up. This is good for those who sell.

But then when that order book is filled, the price goes down again and, all other things being equal, should go down below the original price.

So a tender offer buys the shares at the lowest premium which is good for those of us who don't want to sell.
 
Reading the stuff is tough going

8 RIGHT TO TERMINATE THE TENDER OFFER

8.1 If at any time prior to the announcement of the results of the Tender Offer, the Board in its absolute discretion concludes that:

8.1.1 the Tender Offer would no longer be in the best interests of DCC and/or Shareholders as a whole;

...

8.1.3 there has been a change in the national or international, financial, economic, political or market
conditions; or

8.1.4 there shall occur any material change in the financial position or prospects and/or circumstances of the Company or the Group (including, without limitation, in relation to the Profits Available for Distribution of the Company),

which in respect of paragraphs 8.1.3 and 8.1.4 above, in the opinion of the Board (acting in its absolute discretion), renders the Tender Offer temporarily or permanently voidable, impractical or inadvisable (taking into account the background to and reasons for the Tender Offer), DCC shall be entitled to compel Davy to terminate the Tender Offer and no Ordinary Shares tendered under the Tender Offer shall be acquired.
 
joe sod said:
What is stopping them from just going into the market and buying them that way though?
Click to expand...

1.2 Why is DCC pursuing the Tender Offer?

As noted above, when the Company announced the simplification of the Group in November 2024, it also announced its intention to return surplus cash arising from the process to Shareholders. The Board has concluded, taking account of the relative costs, complexity and timeframes of the various possible methods, that the Tender Offer represents the most effective means of returning a significant amount of capital to Shareholders in a short space of time and in a manner that provides Shareholders with a suitable degree of optionality as to the number and value of Ordinary Shares that they may elect to offer for purchase.


...

(d) as opposed to an on-market share buyback programme, the Tender Offer will enable a material sum of cash to be returned to Qualifying Shareholders swiftly in a single transaction.

1.3.2 The Tender Offer will reduce the number of Ordinary Shares in issue, and so should, assuming earnings stay the same, have a positive impact on the Group’s earnings per share as the Company intends to cancel all of the Ordinary Shares acquired under the Tender Offer.
 
What will happen if the share price rises above the strike price?

Let's say that the share price rises to £55.

And enough people have tendered shares at £52. They will regret having tendered their shares and may have missed the deadline for withdrawing it.
 
What will happen if the share price falls below the current price?

It makes sense for DCC to buy shares at £53 when the share price is £50.

And it makes little sense for personal shareholders to sell their shares at this price.

But what happens if the share price falls to £40? Those who have opted for the tender will be delighted but those who have not will lose out.

I suppose you take your chances.
 
Brendan Burgess said:
1.3.2 The Tender Offer will reduce the number of Ordinary Shares in issue, and so should, assuming earnings stay the same, have a positive impact on the Group’s earnings per share as the Company intends to cancel all of the Ordinary Shares acquired under the Tender Offer.
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I think this is the most important factor for the company. I won't be taking up the offer , might even buy more at the current price.
 
Recent 2025 DCC shareholder here......their de-conglomeratisation strategy is the correct one for shareholders.....they are selling minor contributing profit business units like DCC Healthcare at x12 OpProfit and buying back stock in the HoldCo at x7-x8........that might be a matter of opinion if it weren't for the fact that DCC Healthcare was a lower growth and lower RoE one than the core energy business.....indeed their most recent disposal (infotech) was marginally profitable but contributed a huge amount of working capital 'noise' to their results (vendor financing) such that there is a very good argument that it detracted from the relative stability and limited working capital requirements of the underlying DCC Energy distribution business.

As regards the tender.......I look at this way.....what is your estimation of fair value for the core DCC Energy distribution business three years out minus the future DCC Technology sale plus recycling of proceeds into buybacks on an EPS basis....which is a function of the underlying performance of DCC Energy on a go forward basis, how much shares outstanding shrink as a result of this tender and future disposal proceeds and finally the multiple that DCC may achieve in the market as a future high quality pure play distribution passthrough entity that is a both advangated serial acquirer and so has organic and inorganic growth opportunities ahead of it and a multi-decade track record of delivering on that and work backwards from that with whatever discount rate you like to use.

Inside that overarching fair value estimate (higher or lower sp than today) should drive your tender decision.

If you think DCC is undervalued today and you decide to participate in the tender....you are functionally engaged in what I would call short term trading.....

If you think DCC is fairly valued or overvalued....the tender offer represents an opportunity to sell at a higher price than the spot market offers today and should be taken.

joe sod said:
What is stopping them from just going into the market and buying them that way though?
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Liquidity & time.....if the stock traded more volume per day you could get the £600m out the door without pushing up the price of the underlying too much & in a reasonable period....in DCC's case a tender was the right call....it allows for the buyback to occur expeditiously with an acceptable impact on the underlying price paid.
 
Sorry, it's a lot simpler than that.

Your opinion on the future of DCC doesn't matter ( and discussion of it is not allowed under the Posting Guidelines)

If the market prices your shares at 50 and they are prepared to pay more than this, you should tender as many as possible.

Unless you have a CGT bill which most long-term individual holders have.

If you think you can value DCC better than the market can...

If you think that they are overvalued, then you should be selling the shares anyway and this is a good way to do it.
If you think that they are undervalued, you should sell your shares at the tender price and buy back more shares with the proceeds.
 
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Brendan Burgess said:
If you think that they are undervalued, you should sell your shares at the tender price and buy back more shares with the proceeds.
Click to expand...

Your assumption is that when DCC goes ex-tender that there is some continuity in the price from the pre-tender announcement price to the ex-tender price....such that you get to 'get back in' at something akin to the pre-tender price or even the tender strike......when in fact all things being equal you've got two big problems....this strategy means number one you've lost 33% of your embedded gains in DCC to tax leakage ....so you now have diminished purchasing power/capital to 'buy back in' so your economic participation in DCC has been reduced....but it could get worse....which once DCC goes ex-tender/results of the tender are published what efficient market would suggest is there the final move up to the ex-tender price (that being the pre-tender announcement share price increased by the expected percentage sharecount reduction achieved in the tender).. If DCC retires ~10% of its share count, EPS mechanically rises by ~11%. To maintain the same P/E valuation, the share price must rise to match that EPS growth...this ensures continuity in valuation.....it makes it so whatever gain occurs via the tender takeout gets wiped out by CGT leakage (I think some tender risk arb exists that could be exploited likely a percent or two!)

I'll return to my original position: The only metric that matters here is your estimation of fair value say two or three years out. The tender machinations are secondary to this overarching framework. The tender with its marginal arbitrage opportunities (a percent here or there) is a sideshow especially when one considers CGT impact.

Now if you we're looking to 'get out' of DCC because you thought it was fairly valued or over valued.....well the tender is a wonderful liquidity event that would allow a large holder to exit at a price and at volume level that might not be available to them in normal daily trading volume.....put another way a tender offer is an excellent exit opportunity for shareholders who wished to exit anyway........I tend to think of them as voluntary redundancy packages in a large company.....its an excellent way to get rid of low enthusiasm employees....in a purely share price driven way a post-tender shareholder registry has move "believers" than "non-believers" than it did before.....all things being equal that is postive for the share price moving forward....the share price being the intersection of enthusiasm to sell versus buy on any given day.....and fair or intrinsic value being the mediator that manages that balance.
 
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First of all...

On the CGT, I have repeatedly pointed out that the CGT hit will make this unattractive for most personal investors.
 
These are the actual figures using the maximum price.

1764751795202.webp


So post-tender, the share price should fall, all else being equal.

So you sell at £53 and buy back in at £49.6

If I understand you, you are arguing the very opposite, but if you do your figures using the actual earnings and the EPS and P/E, it would be easier to follow.

The problem with your analysis, if I understand it, is that a company can just keep buying back shares and inflating its share price without a limit.
 
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