Brendan Burgess
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Not unless the market price drops significantly as any potential benefit is hugely outweighed by the CGT hit.
DCC plc tender offer
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Not unless the market price drops significantly as any potential benefit is hugely outweighed by the CGT hit.
Yes , but that only applies to Irish investors, in the UK they have lower CGT and a much larger CGT allowance so maybe some of those investors could be tempted to partake in it. Also DCC only traded in London now so could have a large UK share ownership.
Brendan Burgess
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Well you asked me the question!!! I am an Irish resident investor. So, I don't know why you are "yes, butting".
No your answer makes sense but in the overall context of the DCC share buyback Irish CGT might not be as much of a factor that's all.
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@joe sod
You seem to agree with Gemini's analysis?
Gemini has not dealt with this point. What is your view?
You seem to agree with Gemini's analysis?
Gemini has not dealt with this point. What is your view?
Yes of course in that scenario you should tender all your shares at £100 but no company would ever offer such an attractive buy back, why would they?
Even at £60 you should tender all your shares , if a company was going to buy out DCC then that would likely be the buyout price from my experience .
If you were a UK investor you could probably chance doing what you suggested, if you still had CGT free allowance not used elsewhere. I think your suggestion was to tender at the highest tender price. For an Irish investor its simply not worth it due to our CGT .
Brendan Burgess
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You are assuming that there is a CGT liability. You could actually be realising a useful CGT loss.
Yes that's true I thought about that myself but you have to wait a month to get back into DCC to realize that, in the meantime as letitrol has said the share price could rise after the share buyout. I'm actually in a small paper loss on DCC as it is , your graph shows that fairly well.
Your right but for the wrong reasons...and your math helpfully proves my point.....there are value accretive unit sale/tender buybacks and there are value destructive ones....you just described an EPS, share price value destructive one......why....Chairman Brendan of DCC took the economic value arb in the unit sale & buyback plan and torched it with an insane tender offer premium
As I've pointed out now a couple of times at what price the tender gets done is mathematically fundamental to whether the the tender buyback is immediately accretive to continuing shareholders relative to the pre-tender price lets call it £50 here i.e. the share price goes up or down (relative to the pre-tender announcement price) and on the day DCC sends the money out the door buys back the tendered shares and cancels them......in your example above yes people should tender their shares at £100 because that represents a 100% premium being paid to sell your shares and become a non-continuing shareholders.....DCC achieved only a 20% arb on the enterprise value on the day of the healthcare unit sale......that is the value accretive 'piggybank' thats the companies board's BUDGET to create value...to be accretive to CONTINUING shareholders DCC's board has to work within that budget to actually create value for continuing shareholders (i.e. make the share price go up after the tender deal settles).
what you described above proves my point exactly....its a 100% tender premium......and gives AWAY all the value accretion and more to leaving non-continuing shareholders......continuing shareholders would see the share price collapse no matter how positive they are about the future of DCC....cause EPS has been driven down post-tender by a dumb board who broke my rules.....and all the value of the deal (& more) has been sent to non-continuing shareholders.....the underlying remaining shares had none of value of the unit sale/arb deal go into them in fact the board over-spent whatever value was created and yes you'll be happy to hear the shares would adjust downwards the day after a dumb £100 per share tender deal such as this gets done....by the mathematical value destroyed first of all....and then later by complete loss of confidence by the market in a board who would authorize such a dilutive deal.
@Brendan Burgess - I think in your mind somewhere there is a law of physics that says when cash leaves a company's treasury, no matter the circumstances, the share price always has to adjust downwards the day after and that isn't the case. It's completely dependent on the underlying nature or math of the transaction performed.
In a properly performed unit sale and tender buyback where the underlying deal arb is high/wide enough, the stock reaction post news of the unit sale but before tender offer/completion is low enough and then the tender premium paid to non-continuing shareholders is modest enough.....and the RemainCos business quality is on par or higher than the previous HoldCo.....the shares wont adjust downwards.....the shares will actually CONVERGE with the tender premium price paid to leaving shareholders.
What we can agree will adjust downwards after the tender completion is the companies market cap will go down - because £600m of cash has left the companies treasury - but market cap is different than the share price......one is the Pizza.....shares are slices of the pizza.....the pizza can get smaller but the pizza slices dont have too (if you follow 'the golden rules' above about creating value for CONTINUING shareholders in a division sale and tender buyback & share cancelling transaction).
The other bit of confusion I suspect here is that even though some of the arb unit sale value creation is getting consumed in performing the tender......which is to say that non-continuing shareholders are getting cashed out with 'a bribe' at a premium to the pre-tender market price...lets call it 'tender leakage'..that cash bribe is much much smaller than you think..and so this tender premium acts a little bit like a dividend in that for sure it leaves the company AND the continuing shareholders for good and is gone, gone gone....but your own "fall back" thesis below is really focused on the 'before' price....the market price before the tender gets announced.
These are the actual figures using the maximum price.
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.
Using your own figures above....£50 pre-tender market price or the' before' price.....tender done at £53...and then your fall back thesis to £49.6 or even lets just call it £50 the old pre-tender market price....its way wrong....in a value accretive tender DCC's new post-tender share price will CONVERGE with some variable slippage ('the bribe' I talked about above which is there to create the liquidity) to the TENDER price......not FALL BACK to pre-tender market price as per your math and position.
Now I guess the next question (for the eagle eyed observers out there) is why the hell would anyone participate in a tender offer at say £53, when the stock is at £50.... if everybody and the market realizes the post-tender price is likely to converge very closely with the tender offer price of £53 anyway after the tender completes?
.......and the answer is...drumroll....liquidity........which small retail shareholders never think so much about.....for large institutions who may have been thinking of selling DCC anyway, rebalancing the portfolio away from energy into Year End....a tender offer is a wonderful opportunity to avoid the PRICE slippage a large seller causes in the market & the trading fees that would come if they we're to attempt to sell their DCC holding in an open market transactions.....
so yeah an institution knows DCC's price is going to converge with DCC's tender offer of £53.00 post-closing or some estimation of EPS growth holding constant for multples (if the board hasnt broken my golden rules of accretive sales and buybacks)...and the stock price is going to move up from the "before" price of £50.00 to £53.00....to be accurate lets call it £52.95 to account for the tender leakage/the bribe that does occur here but not by as much you think it does....your thesis is a fallback to £50 a share.....well the institution doesn't think about it like that it says well to sell my HUNDRED million pounds of DCC stock over a period of month would have meant pushing the market price down by 5% via the impact of our selling pressure plus say 20bps of trading fees to Morgan Stanley....so the institution knows DCC's future market share price is headed towards broadly converging with the tender strike price (which is still a guess) minus some tiny bribe leakage......but the institutions value calculus is "I'm getting out of DCC (which I wanted to do earlier) at WAY WAY WAY WAY closer price to the market price I see on my Bloomberg screen than I could have ever envisaged if it weren't for this tender offer. The real premium or upside being given to me is exit liquidity, some particaption via expectation in the value accretion and the avoidance of large scale sale price slippage"
The institutional premium or incentive or upside to participating in a tender offer then is not £53.00 (tender offer) minus £52.95 (the mkt price o the screen after the tender completion = £00.05 premium.....the institution realizes that £52.95 (the estimated post-tender mkt price) is not the volume weighted average price they would have gotten for selling down such a large stake......the gift they are being given relative to continuing shareholders is a tiny sliver of cash & a way to avoid price slippage in their selling.
So to answer this part above specifically as its instructive......I dont believe in free lunches..or that a company can buy back stock to the moon in some infinite money glitch.....the market is efficient it prices stock prices on a multiple of EPS.....shareholders are rational......but as you see above....in a value accretive unit sale executed at the right price with the tender buyback premium done at the right price AND the RemainCos business quality maintained or improved ....EVERYBODY....continuing shareholders.....and even future ex-shareholders.......can be happy....everybody can win if a smart deal is done.....
@Brendan Burgess Trying to diagnose where your mental model is going wrong....I think your market efficiency framework while correct is making you say to yourself...... "it is impossible that an efficient market can price a stock at £50 on Dec 5th (pre-tender) and drive it up to £52.95 on Dec 18th (ex-tender) with £600m leaving the companies treasury to boot...there are no free lunches in markets....the stock MUST by the laws of efficient market go back down or "fall back" as you say to £50 or £49.60 cause all this information was known on the day the tender was announced". Hopefully the above helps.
The arbs would likely sell short the stock if that happened.
The price you see on the screen for DCC between tender announcement and tender close.....is now a hybrid security....market participants understand that EPS is mechanically going up via the buyback, how much gets bought back is a function of the tender strike price...they have a well founded view that DCC is let's call it a £52 stock sitting out in the future....Buffett used to call them special situations.....
So DCC mkt price since tender expectation and announcement is now a mix of its future business prospect but also a probabilistic weighted view on what price the tender will close at or whether the tender even completes (deal risk). The Proration risk of holders who might want to sell but only get a small allocation etc.. How energy distributors trade between then and tender close. Ukraine/Russia peace deal expectations. Maybe Donal Murphy, CEO loses his marbles in the next two weeks. The gap between £50 & say £52 is all that.....its also the cost of capital..or a time value of money....a tender or merger arb firm has risk adjusted annualized return targets....the spread here risk adjusted for a stock potentially going from £50 to £52 in a month in a financial engineering transaction may not work for them and so the spread wont close.
So you know @Brendan Burgess you have "fall back" price target of £49.60 the pre-tender announcement price minus some slippage I guess for the cash that leaves the company in your cash box model..your model is the folks who get tendered and paid out get paid £53 and post-close continuing shareholders should expect the price to fall back to £49.60 (all else being equal) cause you know thats what the ticker said the day the tender was announced and markets are efficient and if CGT didn't exist, you should tender and buyback....
I have a competing tender premium target price lets call it the tender premium PLUS EPS growth via buybacks "convergence" theory which is internally more consistent with efficient markets but also the underlying financial engineering DCC has done correctly selling a unit at x12 and buying back at x10......over the coming weeks (absent gyrations in energy stock valuations, beta moves in the FTSE).....DCC shares will start to converge with my plucked out of the air projected tender strike price of say £52.....the spread is real and rational... ...your £49.60 "fall back" thesis holding equal for everything else however completely ignores very real value accretion that the DCC board has engaged in, continuity in valuation multiples across time & the EPS growth that will occur as DCC cancels shares outstanding.
In the words of Blaise Pascal - "I have made this letter (post) longer than usual because I lack the time to make it short"
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Brendan Burgess
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For a second there I thought you were talking about pascal Donohue. Fair play for going to all that effort in explaining it, not that I understand it all but I get the main thrust of what you are saying.
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Well then summarise it for the rest of us. Because he is saying nothing.
He can't differentiate between the price changes as a result of the announcement and the adjustment as a result of the shares going ex-tender.
Brendan
First -
explain this sentence to me like I'm five? in detail and with prices corresponding to these moments in time your confused about and want an explanation on. There are IMO four key milestone moment in the recent DCC & future equity story which concerns this conversation here on likely tender dynamics:
1. Healthcare Unit sale announcement (& the price multiple achieved)
2. Confirmation of cash proceeds to be used in tender buyback versus special dividend
3. Tender Offer Announcement with DCC bid tender guidance re: max price to be paid
4. Tender strike price announced followed by the actual tender transaction
I've explained more or less already each place where the stock diverges from where folks already know where its going ex-tender.......so how a stock that was 4700p pre-tender announcement, moves first to 5000p on tender announcement confirmation even though its highly probable the stock is actually headed towards say 5200p (ex-tender)....but it doesnt go there until the tender transaction closes
Second -
Can I just confirm after all my explaining your framework here remains as per what you posted on Pg.1 and I quoted above?????
DCC at £50 after tender announcement
DCC tender gets done at say a £52 strike
DCC the day after the ex-shareholders get their money (£52 per share) & DCC gets their stock and cancels it.....DCC shares then back to £49.70 but lets not spilt hairs lower than £50?
Brendan Burgess
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All of those 4 announcements may well result in the effects you are talking about.
But I am talking about the one you omitted!!!!!
2.1.3 All Qualifying Shareholders who are on the Register at 6:00 p.m. on 17 December 2025 are entitled, but not required, to tender some or all of their Ordinary Shares for purchase by Davy, acting as principal, at a price or prices within the permitted range of pounds and pence per Ordinary Share prices set out in this Circular.
If you are on the Register on 17th you are entitled to sell your shares and these rights presumably have some value.
Shares on the 18th lose that right and will be adjusted down in price accordingly.
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Can I take another approach to get my point across.
CRH shares trade at £90
They launch a rights issue to buy one share for every share held at £80
They are going to use the proceeds to buy a company which has a patented new process to make cement at half the current cost of production.
Take me through the impact of all this on the price of CRH shares.
Brendan
CRH shares trade at £90
They launch a rights issue to buy one share for every share held at £80
They are going to use the proceeds to buy a company which has a patented new process to make cement at half the current cost of production.
Take me through the impact of all this on the price of CRH shares.
Brendan
Brendan your all over the shop..you've been talking about post-tender in all your tables with £50 pre-tender....£53 tender....£49.70 "post-tender" price labels...."post-tender" to be clear is when the tender is done (the company spends the £600m, shareholders sends their shares) to be doubly clear I've talked about post-tender & ex-tender interchangably
Anyway like now you've zoned in on this single trading day.......not even a day (Dec 18th) inside this whole month long tender process we have been talking about.....it amounts to NINE hours of trading on Dec 18th.....Dec 18th isn't "post-tender".....I'd refer to it as the determination period (Davy is hard at work figuring out the tender strike price from all the bids received to figure out the tender strike)...Dec 19th after 7am is post-tender when the strike and volume of shares to be purchased is announced
Anyway I'll deal with this one day/nine hour trading period if it helps you figure this all out.....and you'll see echoes from my large post above where you said>
If you read it properly you'd see I was telling you everything you needed to understand about the nine hour trading period of Dec 18th that is now troubling you. Sure you are technically correct on this day > DCC stock loses the option value of the ability tender.......but you've totally ignored the CONVERGENCE framework I typed out for you and you've forgotten all about the EFFICIENT MARKET....I said>
This convergence is real....some might call it the march to the tender strike price.....one can estimate from today what DCC's EPS is post-tender (Dec 19th) by estimating the number of shares as % of s/o they'll manage to buy back..its unknown today but you can figure out the range..the stock broadly with some bribe slippage is headed there. I talked about this alot here -
And here -
Now that we've re-caught up with what I've told you already and maybe this time around you've internalized it a bit more....the table is set for understanding Dec 18th and why the stock wont fall back, adjust downwards like some law of physics.
Now yes DCC shares lose the option value of participating in the tender on Dec 19th......yes options like this under black-scholes has/had value......but remember as time rolls on towards Dec 19th the post-tender day...... the stock is slowly and constantly converging with what the market knows already.....DCC is about to cobble up a bunch of shares with cash it got by selling earnings at x12 & buying back its own earnings at x10...this isnt an infinite money glitch, this accretive financial engineering......the stock (via time value of money, deal risk premium shrinking as Dec 19th approaches) is like a moth to the future tender strike price flame.....its constantly moving there as time collapses (time value of money), deal risk shrinks (no announcement about a tender cancelation by Dec 17th kinda means its almost definitely happening on the Dec 19th.
(As an aside and for the record my guess is DCC gets this tender off at an attractively low premium (lots of talk here of £53 which wont happen IMO I think its on low end of their bids like £51.xx) but you know as they become an energy pure play some funds are not going to be able to hold them and keep the Greta Thunberg's happy....when DCC was conglomerate with a big energy division I dunno you could fudge it as a conglomerate some funds I'm sure wont be able to defend it into 2026 without the Healthcare, LifeTech divisions.....so they've got some potentially uneconomic reasons to sell into the tender just to close out their 2025 ESG book into 2026.....anyway the lower the better for continuing shareholders as more of the accretion value flows through to us as more shares get retired for the £600m spent)
Anyway back to the point-
Now lets go even more micro you said -
I'm going to assume that your "post-tender' above is now talking about this lets call it "determination day" Dec 18th the day when Davy is furiously figuring out (determining) the tender strike price that will go out on the company RNS on Dec 19th at 7am annoucing the tender stirke price and the shares to be cancelled.
Dec 18th - DCC shares have no tender option value inside them - CORRECT - But remember what I said about convergence, time value of money, tender deal risk diminishing..remember what you said about efficient markets and I agree...and the market pricing is pricing in all public information....the market will open Dec 18th knowing the option value is gone but it wont drop the stock price like you said it but it will continue its convergence journey to the right price for RemainCo....which is to say DCC on Dec 19th when it begins to trade with a new sharecount underneath its earnings.
How perverse and inefficient would it be for the market to drop DCC's price on Dec 18th, knowing its sharecount is going down on Dec 19th, its EPS is going up Dec 19th.........all while the kinda justifiable gap or spread between pre-tender DCC's share price lets call it £50....and post-tender Dec 19th DCC lets call it £52 closes......it converges....indeed broadly the convergence to lets call it £52 accelerates in velocity in this Dec 16th to Dec 19th period....everyday between now and then outside beta and sector moves we are moving there.
So I guess the kindest thing I can say for your adjustment thesis @Brendan Burgess is that everyday in the markets there are things in the plus column and things in the minus column...... positive and negative forces at play driving stock prices around.....what I'll say about the special day of Dec 18th and the option value in DCC's shares disappearing that day is that YES its a negative......that negative will be swamped by something that isn't unrelated indeed it's TOTALLY related to the option value expiring and its the positive that the tender book closed on Dec 17th (defacto locking in the buyback) and the tender announcement is hours away at 7am on Dec 19th so risk premuim driven by time value has collapsed, tender close deal risk has shrunk....every minute to market open on Dec 19th DCC trades more and more in line with the expectation of lower shares outstanding against its earnings and the "lock in" effect of doing a truly accretuvie buyback.
I'm afraid the one semantic argument I can anticipate from you and I wont let you away with....is one where you will say "well I did say the share price would go down (all else being equal) and you've confirmed the option value expiring is a stock down event so I was right!!! Thanks!".....but really Brendan what happens between Dec 17th & Dec 19th is kind of all the same thing........the option expiry on Dec 18th is a function of the tender book successfully closing on Dec 17th..it closing & the option value expiring combined is stock up event....not an adjustment down moment or fall back to £49.70 moment....they are tied in a box together ..its chicken & egg stuff.....it is two sides of the same coin stuff....you cannot separate the option expiring from the deal closing—they are functionally & in practical terms the same corporate event.
Final point on your option value thesis and the downward adjustment that needs to occur on the morning of Dec 18th.....well as we approach Dec 18th the option value embedded shrinks under the efficient markets/convergence reality here.....your £0.40 adjustment down £50 to £49.60 with a tender at £53 is, I'm guessing based on £50 stock price and £53 tender strike price spread being in place on Dec 17th.... I wont get my options calculator out.....but the reality of efficient markets is if the tender strike price likely to be £53 on Dec 19th....by Dec 17th at tender close the stock is going to be getting very close to £53...which mean the option expiry value tender announcement through to Dec 17th is just shrinking all the time.....the option value is converging with ZERO, as the stock price converges with the post-tender RemainCo share price (EPS x multiple)....on Dec 18th the option value goes to zero sure....but the question is from what?....the option value wouldn't have been £0.40 the morning of Dec 17th!
So even if a price adjustment theoretically should happen on Dec 18th, for the record the adjustment doesn't exist because the tender offer close of Dec 17th & the tender option expiry are the SAME event....but I dunno if you could somehow untangle and isolate its effect in a vacuum on the morning of Dec 18th (I dont think you can) but I'm heading into fantasy land to expand a point to help with understanding....but think of it this way - the tender option value the split second before the market closes on Dec 17th is worth what exactly?......probably £0.0000001....cause you know think about what convergence is doing to the underlying its moving the mkt spot price the whole time towards the probabilistic bet on the final tender strike price.....and if that weren't enough destroying the underlying option value.....well think about how options are priced......the big components are time the option are in force and this is decaying and near death....and the payoff characteristics of options the spread to when they go in the money & all the other greeks.....on every metric time/spread....your embedded option value is just getting killed from now until Dec 19th in terms of notional value......and its getting killed in value too by the mkt price/tender strike price spread compressing.
So I mean basically I hope I've shown definitively that your Dec 18th or ex-tender date (as YOU call it) option adjustment cliff event is a fantasy. The market is efficient, it has all the information, its discounting risks, its putting a time value on money, its probabilistically assigning weights to outcomes in terms of the tender strike price, deal break risk, the value accretion to occur to EPS via projected share count reduction and yes the option value you've identified is shrinking daily by every second/ minute and by every tick up in the underlying towards the tender strike.
There you go - Open University would charge you £1,250 for that corporate finance module....just joking they'd never let me in and nobody would pay for my terrible formating and stream of consciousness writing and.....all...... the.......ellipsis...........& stuff
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Brendan Burgess
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So you don't want to answer the question?
You can just say that without rewriting the Bible.
Or maybe you have answered it within the Bible?
You can just say that without rewriting the Bible.
Or maybe you have answered it within the Bible?
Brendan Burgess
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I had not realised that CPL had two tender offers.
And my calculations were correct for both.
But the premium on the buyback was much bigger.
The premium on DCC is much smaller so while it should fall, all else being equal, all else is not equal, and the price may fall by more than my calculations or may rise - especially if the fund managers are using Gemini to guide to their activities.
Brendan
And my calculations were correct for both.
Should I avail of CPL's tender offer?
Reminder of the Posting Guidelines 11 We don't discuss individual shares You won't find any messages suggesting investing in CRH or asking if AIB is a good investment. It is not the purpose of Askaboutmoney. We don't facilitate stock tipping or speculation about the future performance of...
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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...
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But the premium on the buyback was much bigger.
The premium on DCC is much smaller so while it should fall, all else being equal, all else is not equal, and the price may fall by more than my calculations or may rise - especially if the fund managers are using Gemini to guide to their activities.
Brendan
I have experience of a few rights issues, its always companies in bad financial circumstances who do it not companies in good financial health like DCC. You are more or less compelled to partake in a rights issue or else your share holding will be diluted. In the case of DCC share buyback its the exact opposite , if you do nothing your share holding is increased.
"It's nice I like" as Borat would say
Brendan Burgess
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Sorry Joe, but that comment shows a fundamental misunderstanding about rights issues.
I looked for recent examples on the LSE
Chesnara to fund an acquisition
National Grid in mid 2024
And in reading on National Grid, I found this comment:
The London market’s last high-profile rights issue took place in October 2020, when troubled Rolls-Royce Holdings raised £2 billion by offering 140,000 shareholders 10 new shares for every three already owned. The offer price of 32p a share compares with 450p earlier today.
Yes, there have been examples of struggling companies raising money for survival, but they are not very common.
National Grid’s fundraising is the biggest cash call since the Lloyds Banking Group rescue rights issue of 2009, when proceeds amounted to £13.5 billion and new shares were issued at 37p.
I think that AIB had something similar which effectively wiped out the shareholders.
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