DCC plc tender offer

[Brendan Burgess]

You are more or less compelled to partake in a rights issue or else your share holding will be diluted.

There is a small element of this but your rights to subscribe are separate from your shares and you can sell them.

 

[joe sod]

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....

Thats a very interesting phenomenon of shares being ignored by the big funds because of the likes of Greta. But us small guys can take advantage of this by buying shares the big guys can't or are forced to sell because of optics.
But then how are the markets efficient when you have this phenomenon of a stock not getting bought because of bad PR?

 

[joe sod]

There is a small element of this but your rights to subscribe are separate from your shares and you can sell them.

Yes that's true I have experience of 2 rights issues royal sun alliance and greencore I actually missed out on the greencore one because the time frame was so tight and degiro were too slow in accepting my subscription to partake. I was just speaking from my own experience that's all

 

[Brendan Burgess]

its always companies in bad financial circumstances

You were quite categorical. It’s always. You may have meant “the two I have experienced” but that is not what you said.

 

[letitroll]

So you don't want to answer the question?

I answered it - I acknowledged the option value expiration during this nine hour trading period on Dec 18th and explained why its value is negligible and just way smaller than you think and even if you could isolate it, its expiration is tied to the expectation that an accretion event to EPS and supply shock transaction will occur on Dec 19th. To add to this of course is that as Dec 19th approaches DCC stock price is something of probabilistic bet on the tender strike..which is to say, that as Dec 18th approaches DCC's spot price and likely tender strike price are converging......you can see how your option value has so little value the spread isnt £50 to £53...the spread is just way smaller than you seem to think..the spread that option can capture is closing.....indeed as the arbs leave the stock on Dec 15th-16th-17th....the demand for the option value embedded in DCC is also diminishing....

Anyway an example...DCC closed at £50.20 Friday.....on Dec 17th if the stock closes at £50.20 thats pretty close to the markets view of the tender strike on Dec 18th....I mean whats the option embedded in DCC in a tender offer with proration (mind you) that has a spot price of £50.20 on the 17th and tender strike of £5.25..you did math before to get to your £0.40 adjustment on a £50 to £53 spread ..I mean what are we taking about here

Net net given how small a factor it will be on Dec 18th (the deal close anticipation & its derivative negative option expiry) we are talking about something so small that just ho-hum market volatility on Dec 18th is more important than it. Connected to this what I'd say is I entered a discussion talking about DCC post-tender (like after Dec 19th and everyday after that) and because of mislabeling determintationn day as post-tender we've ended up talking about 9hrs of trading on Dec 18th.....talk about missing the wood for the trees. Its close to pointless to be talking about such things as I said in my first post - what DCC's intrinsic value is three years out answers everyone's tender decision. All this getting back in on Dec 18th talk is day trading talk....

Finally just to be doubly clear here cause I'm sensing this from you re: your certainty around an adjustment thats going to. Do you believe that the LSE goes into the order book on Dec 18th like it would on an ex-dividend date and adjust downwards DCC stocks reference price? Alot of your language suggests this and its just not the case....this is not a ex-dividend event.

 

[Brendan Burgess]

.I mean what are we taking about here

Hi Gemini

We are talking all along about the same thing.

There will be an adjustment after it goes post-tender.
Given the closeness of the tender price to the actual share price it will not be a material adjustment.

It's hard to follow your stream of consciousness stuff but it seems that you now agree with me. But I might be wrong on that.

 

[letitroll]

There will be an adjustment after it goes post-tender.

but it seems that you now agree with me

I don't agree!....the only thing we agree on is that at the moment of the tender announcement publication (Nov 17th) DCC had some tender participation optionality value injected into the stock. Its like DCC issued a partial put option against every share in issue.

I suspect as I've alluded to above before that your mental model here is anchored to ex-dividend mechanics and I suspect this is the bit your stuck on. That after DCC goes ex-rights to participate in the tender there just has to be a dividend-esque adjustment of the rights value now lost on the next trading day after that valuable right is gone. It just aint so.

Let's return to your exact wording below:

There will be an adjustment after it goes post-tender.

Maybe it would help if I rewrote and greatly expanded your own sentence? Bearing in mind that we both agree that on Nov 17th on foot of the tender announcement details DCC's shares became imbued with the option to tender the shares which had monetary value but as mentioned this is where we diverge. Read below my rewrite of your sentence now turned into a paragraph:

There will be is after it goes post-tender a continuous adjustment away of whatever tender participation option value is embedded in DCC shares from the tender announcement on Nov 17th to those same rights expiring on the evening of Dec 17th. This continuous adjustment comes from the markets efficient and continuous assessment of the probable tender strike & EPS accretion to occur on Dec 19th as it incorporates all the information in the Nov 17th tender announcement & positions around some probabilistic view on the price level of DCC (Dec 19th & beyond). The market is efficient and is taking in all available information (the tender rights expiry being one) and converging as best it can with some forecast of per share value of DCC on Dec 19th when the results of tender are published at 7am. Between Nov 17th and Dec 17th DCC's spot share price moves to effectively zero out the option value that we're imbued in them on Nov 17th this occurs way before the rights expire as anybody (mainly institutional arb firms) who specialize in collecting pennies position around the stock driving the option value to zero. Nothing happens after the rights expiry at market close on Dec 17th and the market re-opens on Dec 18th and DCC's stock now trades with no right to participate in the tender. There are no adjustments . It has all happened in the preceding days and weeks leading up to the expiry. There is no "after", there is only before.

So @Brendan Burgess there is no "will be" and there is no "after"...there is only before.....the market is efficient remember...we agree on that...it prices all known information.....so as an efficient markets guy yourself riddle me this question:

- where is the new new information that emerges on the morning of Dec 18th "after" the rights expire and the stock trades with no right to tender....what new information is going to drive your adjustment of DCC's stock by the theoretical value of your tender right expiring....put another way who in the market didn't know the tender rights we're going to expire the afternoon of Dec 17th with the stock trading without any tender rights from Dec 18th onwards? The answer is nobody.

There will be an adjustment after it goes post-tender.
Given the closeness of the tender price to the actual share price it will not be a material adjustment.

So one more time for good luck - DCC shares start trading without the right to tender on Dec 18th. Why would an efficient market who knew all this since Nov 17th press release, ignore this information on say Dec 13th, 14th, 15th, 16th, 17th leaving some supposed option value sitting inside the shares, just sitting there on the table then suddenly wake up on the morning of Dec 18th "after" the shares start trading minus the right to tender and adjust the value then instead?

There is nothing to adjust "after" the fact. The market has had no new information to process, whatever option value that existed in DCC shares on foot of the tender announcement of Nov 17th got quickly incorporated and zeroed out into the spot share price as market participants positioned in the days and weeks after Nov 17th and leading up to this most known of known events - the tender option right expiry.

I really suspect you've read and understood more of my posts than you've let on, even though you claimed they said nothing and you didn't understand.....cause your "adjustment" supposition began on Pg.1 here at 40p on a 50 quid stock (close to a 1% move (0.8% to be exact) just a £35m equity mkt cap move)......now we've managed to get it all the way down to "it will not be a material adjustment" above.....ok....suggest you keep going on the road to Damascus your very close to getting all the way there.......................

The truth and the light is there is no adjustment "after" DCC shares are shed of their right to tender. How could there be? Everybody and their mother knew about the tender rights expiring......sure didn't DCC tell us about it way back on Nov 17th, how many trading days since then to zero this out and sure aren't we even talking about it here on askaboutmoney on Dec 8th!!!!!!!!!! So there's the answer to your option value and adjustment puzzle - your chasing adjustment ghosts that just aren't there.

 

[letitroll]

Separately and for those following and interested in this - the new new information to come, will come on Dec 19th at 7am when DCC publishes the tender results - tender strike, participation volume, shares to be purchased and cancelled - this is all new information and that information will get incorporated into DCC's share price at market open on 19th.

The process if one thinks about it is like this:

Nov 17th - DCC Tender Details Announced to Shareholders with dates and bid ranges

Nov 17th to Dec 17th - DCC shares trade under the prospect of a tender event (lots of positioning re: expectations etc. etc.)

Dec 17th (PM) - DCC shares tender participation rights expire

Dec 18th - Determination Day - DCC begins trading without any tender participation rights. Its just back to being DCC shares. Davys, the book runner is working through all the tender bids shareholders submitted to figure out the tender strike, participation level, proration (if any) etc etc

Dec 19th -
7am - DCC in an RNS announces the tender results (tender strike, participation, proration, quantity of shares to be purchased & cancelled)
8am - Market Opens - DCC buys shares as per tender results from tendering shareholders
8am - DCC shares trade with the net new information of the tender premium paid, the new share count after cancelation, what the tender participation looked like was it over-subscribed, under-subscribed etc.

What happens to DCC's stock on Dec 19th when this new information is released is really a function of how accurately market participants forecast the tender results....remember the share price across Nov 17th to Dec 18th was a probabilistic bet on the outcome. The market is attempting to converge DCC's share price today and up until market close on the evening of Dec 18th with its mostly likely view on the 7am tender announcement and how the shares will trade/are worth on Dec 19th & thereafter.......what the stock does on Dec 19th is a function of how accurate market participants were at forecasting the tender outcome.....if the result of the tender is broadly in-line with market expectations around the tender strike, participation etc. expect modest movement relative to the Dec 18th close.....if tender result surprises positively or negatively thats when one might expect some larger moves....the market in effect on Dec 18th had been underweight or overweight the actual realized outcome.

& before you ask @Brendan Burgess no there "will be" no tender rights "adjustment" "after" Dec 18th or Dec 19th......the tender rights expired Dec 17th anyway and the stock traded without them on 18th and there was no adjustment then on 18th either....all adjustment occured Nov 17th to Dec 17th...before, not after the rights expired....the only adjustment anybody should be thinking about is relative to the net new information that will emerge at 7am on Dec 19th re: the tender.....the adjustments that will occur on that day (Dec 19th) in response to this will be all related to the delta that existed between market participants expectations of the tender results versus the actual outcome......(with lots of vol thrown in no doubt as well, as you will have institutional arb firms I referenced in the post above who we're in the stock for only this event unwinding the same positioning that most likely effectively arb'ed away Brendan's option value to zero in the short week or two after the Nov 17th announcement).

DCC on the morning of Dec 19th and thereafter will trade (absent some market day-off participant gyrnations (arb firms etc,) on the day) on something close to pure fundamentals.....the "special situation" era this Nov 17th to Dec 18th period when it traded on fundamentals AND the tender event is now finished....my view remains unchanged from Page 1....you should have a fair value (FV) in mind for DCC (or any stock you own) a price or more realistically a price range.....if the tender offer price exceeds that FV range....the tender offer should be taken up.....if the tender offer does not then why would sell to DCC or anyone else......hope thats helpful for folks!

 

[Brendan Burgess]

Then Gemini

We obviously disagree. But I won't shout it at you.

There will be an adjustment as it goes post-tender.
It will be a small adjustment as the share price will be so close to the tender price.
It could well get lost in the natural volatility of the DCC share price.
Even if it's not lost, the transaction costs would probably wipe out any gain from selling and buying back at a lower price.
And for most long-term shareholders, the CGT hit would wipe out the benefit.

 

[jpd]

I have to admire the tenacity of participants in the topic - I gave up pages ago

Between the the long and impenetrable posts from Letitroll and Brendan's considered replies, my brain switched off

 

[joe sod]

have to admire the tenacity of participants in the topic - I gave up pages ago

Yes, I got an education aswell, still it's refreshing to see that in the age of tik tok and tiny attention spans that people are still willing to go into incredible detail to explain a topic. Obviously if there is money to be made if you get it right that's a driving force to explore something in great depth . This is a great site for valuable information.
The information regarding UK state pension voluntary contributions was probably the highlight for me personally.

 

[letitroll]

We obviously disagree.

There will be an adjustment after it goes post-tender.

There will be an adjustment as it goes post-tender.

Note your subtle shift from "after it goes post-tender" to now all of sudden it's "as it goes".

Brendan "as it goes" Burgess - I'm happy to say we are in full agreement finally!

 

[CitizenErased]

In case helpful, just to throw a precedent into the mix to see if any of the above theory has played out in any way, I looked back at Greencore's tender offer in Jan 2019. Bit different from DCC in that it was a fixed price tender offer, with shareholders offered opportunity to tender shares at 195p.

Tender offer record date was COB on (Tues) 29 January 2019 so, accounting for usual T+2 settlement, a shareholder would have had until COB on (Fri) 25 January 2019 to buy shares (or hold shares and be eligible) in order to show on the register for the record date cut off on 29 January.

Greencore price closed at 193p on 25 Jan 2019.
Increased to 200p on 29 Jan 2019
Came back to 193p on 31 Jan 2019 (date of results of TO announced and repurchase and cancellation of shares)

The real price movement in Greencore's case was between the period of the offer initially being announced on 20 Dec 2018 (price closed up at 178p that day compared to 166p on 19 Dec) and then steadily increasing towards the record date as above.

FWIW, a month later (28 Feb 2019), the shares were trading at 196p.

 

[joe sod]

Only 1 more day to go until this closes, the share price now at £51.60. What will the eventual price end up at close tomorrow i think, £51.7 possibly?
I didn't tender any shares, also didn't buy any more like I said I might.

 

[Brendan Burgess]

So the tender offer closed at 1 pm.

You could have tendered your shares at £50.20 to £53.20

As of now, it's £50.30.

If you were not subject to CGT, you would be happy to sell them at £53.20 but not at £50.20

they paid a dividend of 69.5 pence on the 12th December - not sure when it went ex-dividend.

If you buy shares this afternoon, you don't have the right to participate in the tender.
In practice, I don't know what would have happened if you bought shares yesterday. Would you appear on the register in time to participate in the tender? It's a bit academic I suppose. As the market price is so close to the tender price.

You could have bought shares yesterday at £51
So you could have filled in a tender form today to sell them at £53
If the shares were in your name on the Register at 6 pm tonight, your tender form would be valid.

Of course, if the strike price is below £53, you wouldn't manage to sell any.

 

[Brendan Burgess]

So it's £49.14 this morning.

That proves nothing at all by the way. I suggested a drop of 40 pence all else being equal, but whether this happened or not, would be lost in a fall of £2.70

 

[joe sod]

@Brendan Burgess you were right afterall, I thought like letitrol was saying that it would be £52 now. Doesn't matter how good your analysis can be , you can still be wrong. That's the humbling thing about markets nothing is predictable in the short term.

 

[Brendan Burgess]

@Brendan Burgess you were right afterall, I thought like letitrol was saying that it would be £52 now.

I mustn't have explained it very well.

The fall in the price doesn't prove me right and letitroll wrong. and if the share price had moved up to £52 today, it would not mean that I was wrong and he was right.

share prices go up and down. And the DCC share price movements would easily mask the adjustment.

And by the way, as a shareholder, I would have been happy to be proven wrong. I don't want share price falls.

 

[Brendan Burgess]

So the strike price is £51.70

The share price has risen this morning to £50.35

 

[joe sod]

When will we find out what proportion of shares were tendered for this and bought back by DCC?