Share offer or loan note?

Vasey

Hello,
Can anyone please explain both the cash offer and loan notes involved in the takeover of International Power by Electrabel and what their options involve? As a shareholder of International Power I am now being offered 418 pence per share or alternatively the offer of a loan note which will probably be £1 per share.
I cannot understand the loan note alternative and what it involves.

Thanking you

JoeCrystal

How about reading the documents, it is all in there. I did a quick skim through the documents in question. As far I can see, you have two choices. You can opt for getting paid all in cash, so supposing you got 100 shares, you get paid £418.

Or Loan note which meant you would not get cash but the company will owe you money. And you will get 0.25% interest on the loan. So 100 shares would mean you get £1.04 (0.25% of £418) every year, the first payment of interest will be made seems to be on 29 June 2013. I think you can redeem with thirty days notice though only up to 2015 only.

To be honest, it seems too much of a hassle so it might be better just to opt for cash instead. I think a choice is there for tax reasons.

Hope this helps!

Cheers

Joe

jcmal

I too have this option which may be needed for tax purposes. The question is deciding how mant shares to retain as loan notes. The offer suggests that £200m will be set aside for loan notes. If this figure is exceded than loan notes will be scaled back. I am not sure what the chances of more than £200m of loan notes will be requested. As for too few and its scaled back then you get more in cash which could exceed CGT allowance. Ask for too many and it ties up money which could be earning more elsewhere.

Is there any guidance / track record based on previous loan note take ups as to whether the limits imposed are broken?

calypso_rhapsody

The documents are complex so i understand your confusion! Loan notes are offered instead of cash to shelter capital gains - that is to say if you have made a nice gain on your shares you might find that you have a capital gains liability if the gain exceeds your annual 0% allowance (or will do when combined with other gains in the tax year). If not or if you have capital losses brought forward to cover it then the choice is, in my view, straightforward - take the cash.

If you may trigger a tax liability then taking the loan notes allows you to defer the gain into another tax year and use another year's 0% allowance ... then you get into the scaling back point that jcmal makes but if you are typical small shareholder, maybe from the original privatisation float then it's probably irrelevant!

jcmal

I have never had to take the loan note alternative before in any takeover but I will have to on this one due to the number of shares (ex employee). Is scaling back common? Do loan notes usually get oversubsribed in these offers? I have calculated the number of loan notes that I need to defer to use my full CGT allowance for this year. The problem is that if I dont get that full amount because they are scaled back then I would get too much cash this year. I would prefer not to take this gamble and therefore ask for more loan notes but then thats tying up capital only making 0.25%. If I know that they rarely get oversubscribed its worth asking for the correct amount to be rolled over. Hope that makes sense?

Vasey

Hello,

I would like to thank all stalwarts and newbies so far for their good advice, it is very much appreciated. I only have 598 shares however other investments may push me over the limit and trigger a tax liability if I take all cash at this time. If I go for the option of both cash and loan notes am I correct in thinking that I must complete the loan note offer by 2015? I am aware that I am getting 418p for each share however having read the documents I am still unclear regarding the loan note procedure and how it compares to the cash offer. Can you please tell me how much I will get from a loan note and will it still be the same price if I defer some until the end of the loan note procedure. My confusion lies as to what I know I am getting in cash but I don't know what I am getting for a loan note. I apologise to everyone for not understanding these documents and hope that you can maybe explain this to me.

Thanking you all
Vasey

calypso_rhapsody

I have not revisited the documentation, having decided to take the cash - but the usual structure is that you get loan notes to the same value as the cash plus a small interest for the period that you hold them. Cashing in the loan notes is usually structured so that there are options to do so in one or more different tax years. Maybe someone who has not binned the offer docs can be more precise!

jcmal

Yes, value is the same for cash and loan note both worth 418p. You have 3 years to draw down the loan notes but the new owners have a clause to say that if at any time the current cumulative capital value comes down to 15% of the original cumulative capital value then they can close the scheme and return as cash. They may not chose to do this. Yes, you will get 0.25% as added interest.
My concern regards scaling back of the amount of loan notes if there is a big demand at the outset. I think that needs an expert in these matters to help me on this one.

grey_gym_sock

i'm not an expert, but i'd be surprised if there were scaling back. surely any company would be delighted to borrow money at only 0.25% interest, and therefore they'd likely offer more loan notes than the expected demand.

Vasey

A big thank you to all who have contributed so far. :T
It is much clearer to me now.

Many thanks
Vasey

ladydi1945

I have recently received correspondence from Electrabel with regard to submitting a form to avoid a Belgian tax of 21% on my Loan Note. This seems quite straightforward, but it also contains information of the schedule for repayment of the Loan Note. This has drawn my attention to clause 1.6 on the back of the Loan Note, which states "the notes may only be redeemed or repaid in minimum denominations of £1,000, unless the Note holder has a total holding of less than £1,000, in which case the total Note holding, but not part thereof, may be redeemed". So, say I have got a Loan Note for £10,500 do I reclaim £10,000 this year (2013) and then the £500 and interest next year (2014)?