NATIONAL GRID "B" shares

Jake'sGran

Years ago I opened a Corporate PEP and chose BG. This is now BG,Centrica and National Grid. I don't know if anyone can advise me about this but the broker has sent a letter about National Grid B shares being repurchased by Deutsche Bank for 65p per share plus the annual dividend of 2.5pence which I can reinvest in the PEP or take cash.

The alternative is to retain all of them until later in the year when they can be converted into ordinary shares. This conversion would be calculated by Deutsche using the share price average for the previous five business days divided by 65p.

I have tried to calculate which is the best option but can't seem to get my head round it. I have 358 B shares, don't need the cash and think National Grid are a good share. Has anyone got an opinion?

bowlhead99

I haven't read your letter in detail but what I think it means is: your B shares are worth 65p and will still be worth 65p to you later in the year.

They are not the regular 'ordinary shares' representing real equity ownership of the company. Instead, they're 'preference shares' which means that year in year out the holders should get dividends (2.5p this year) in priority to the real owners, so they are a safe bet - but if the company does very well, you won't get the same improvement to your share price that a holder of an ordinary share would get.

Now, you own the B shares this week and so you have become entitled to the 2.5p dividends that will pay out in a few weeks time. Deutsch are willing to give you 65p for each share and you get the dividends too (whether you take their offer or not), so you will have a few hundred pounds in your pocket to invest in whatever you like. With cash in your pocket you could invest in 'ordinary' national grid shares if you think it's a great company, invest in something else that takes your fancy, save it in a bank account for a rainy day, whatever.

If you wait until later in the year, the B pref shares get converted to ordinaries at (price divided by 65p). If the share price of ordinary shares is 650p you would get one share for every 10 B shares you had. To keep the maths easy lets pretend you have 1000 B shares. So that would turn into 100 ordinary shares, each worth 650p, total value £650.

Alternatively maybe the price of ordinary shares is 1300p. You only get 1 ordinary share for every 20 B shares. Would end up with 50 shares worth 1300p each, total value £650.

So you can see that no matter how successful the company is and whether the company doubles or halves its value between now and conversion, your B shares are going to have the same effective value. If I were you I would sell up now! If you don't need the cash, invest it in something.

The difference between the two options is that with one of them, you are selling your shares for a value, and in the other, you wait around and they turn into something of the same value. For some people this would be an important difference because selling a share is a key event for the taxman, whereas converting it into something else would delay that event. But you hold these in a PEP so I assume you don't have to worry about paying tax when you sell the shares.

Jake'sGran

Thank you very much Bowlhead. It is very good of you to take so much trouble with your response. I think I will take your advice and take the 65p
and have it reinvested into NG shares within the PEP paying no commission.
Looks like I only paid approx £3000 for this PEP and it is now worth over £12,000 plus I have some Deutsche post shares so I can't complain and the present decision pales into insignificance but I do thank you.