Standard Life - 73p Cash Payment But .......

molerat

I have just received an e-mail from SL re the planned capital payment. 73p per share, all well and good ...... but ....... they are consolidating the share base and issuing 9 new shares for every 11 currently held expecting new shares to be at the same value as the old. 2/11ths of the current share price is around that 73p so their is no gain in this payout. If the dividends stay the same it will mean an overall loss as the payout will only be 9/11ths of that previously received. So where has the £2.2bn gone ?

jimjames

Paid out? As per Vodafone the company is less valuable once the cash has been returned. Guess it's similar situation.

Old_Slaphead

molerat wrote: »

I have just received an e-mail from SL re the planned capital payment. 73p per share, all well and good ...... but ....... they are consolidating the share base and issuing 9 new shares for every 11 currently held expecting new shares to be at the same value as the old. 2/11ths of the current share price is around that 73p so their is no gain in this payout. If the dividends stay the same it will mean an overall loss as the payout will only be 9/11ths of that previously received. So where has the £2.2bn gone ?

It's being given back to you as cash.

The share price jumped significantly when the deal was announced last year....that's when you had the benefit (think it was trading at about 380p when sale of Canadian subsidiary was announced and went up by 10% on the day)

bowlhead99

The company is worth what it is worth, based on a market view of its assets and future prospects.

If it gives a pile of money to each of its owners for them to put into their own individual pockets, what is left inside the company cannot possibly be worth the same amount of money.

If you have a full plate of cake in front of you and an empty belly, and you put some of the cake into your belly, and eventually pass it through the toilet, you will have less cake on your plate. So, you cannot both have your cake, and eat it.

The gain from SL running their business well and maximising their long term value by selling a part of the business for a profit has allowed the cake to grow in size. That was announced last year. That is like the cake cooking in the oven and then having someone decorate it, and is what has enabled you to be sitting with a large cake in front of you.

If you now choose to redistribute the cake by carving a bit off the cake to put into your belly or taking the decorations off the cake and putting them into your pocket to go and dress some other cake elsewhere, those events do not 'create' anything. The creation happened in the oven and on the decorating table, last year.

So: now the cake is cooked and dressed up and ready to be split into bits between what you have on your table to sell to someone else, what you have in your belly and what you have in your pocket. But the action of splitting it into bits is not going to give you a gain.

The good thing is that this is the type of cake that can be put back into the oven to grow. If you don't want the cake that you put into your belly or the decorations you put into your pocket, you can put it all back onto the pile on the plate and wait for the whole lot to get bigger and more impressive over time. Then you can take bigger slices off it in future years. There is of course the risk that it gets overcooked and you wish you had just eaten some of it now and sold the rest.

molerat

So why the big fuss and terms like windfall when in fact there is no gain, they are in effect simply buying 2/11ths of the shares back and cancelling them taking £1.7bn off the value of the business. Would it not have been better to actually state that in the first place ..... but maybe that would not have led to an increase of the share price at the time as that surely was, at least partly, prompted by the expected 73p cash payout.

killerkev

molerat wrote: »

So why the big fuss and terms like windfall when in fact there is no gain, they are in effect simply buying 2/11ths of the shares back and cancelling them taking £1.7bn off the value of the business. Would it not have been better to actually state that in the first place ..... but maybe that would not have led to an increase of the share price at the time as that surely was, at least partly, prompted by the expected 73p cash payout.

But there is a gain for example if you hold say 500 shares worth x amount say £2500 these will be replaced with 409 new shares worth around £2500 depending on the share price at the time of conversion (normal market conditions) plus you get a payout of £365 in your pocket to do what you want with, a nice little bonus
Hold more shares and get a larger payout

bowlhead99

The market likes stories that companies are in a position to return cash to shareholders. Those companies are more valuable if they can survive making decent profits without having so much cash tied up in the business.

The company put part of its business up for sale recovering 4 billion Canadian dollars. That money represented the assets in the Canadian part of the business including the profits there that had accumulated over time. So, to suddenly be able to turn that back into $4bn of cold hard cash was a good result for SL and allows them to pay a big slice of their overall value back to investors. Plus, the market liked the idea that they had been successful in the sale, as it means less cash at risk, a more focussed business, and proves they are able to deliver on creating value.

So, they did create value at the time of the deal, in everybody's eyes, and the shares jumped up in value. It was prompted by the fact that if they gave x pence back to all the investors they would still have a business worth y pence and therefore the value at that time (adjusted down a bit for the risk that the deal with the purchaser did not complete) was around z pence.

So, you have already had your value increase, and now you are getting the physical cash promised. A bunch of value being generated and and an even bigger amount of cash being returned to you, is a 'windfall' which is why some media outlets would call it that.

You ask if it would not have been better to state they were returning money to shareholders and taking it out of the business. That is what any dividend or share buyback is, and you learn it in the first few minutes of any 'what is a company and why would I want an invest in it' class. Probably doesn't need to be spelled out.

Here's a BBC article from last September when it was announced. It says they are returning £1.75bn to shareholders. The directors of a company look after all the money and assets for the shareholders. In this case, they decided to return it to the shareholders hands. The article doesn't say that Father Christmas has decided to magic some money into the hands of the shareholders while still leaving all the money and assets in the company. The company is returning some of what it has, to its owners.

If you are looking at 'what it would have been better to actually state in the first place', did you read what the company actually published in its own news releases, rather than what you read in the papers? In chronological order:

http://www.investegate.co.uk/standard-life-plc--sl--/rns/disposal/201409040700087955Q/

http://www.investegate.co.uk/standard-life-plc--sl--/rns/update-on-disposal-of-canadian-business/201501230930059811C/

http://www.investegate.co.uk/standard-life-plc--sl--/rns/disposal-of-canadian-companies/201502020700216727D/

http://www.investegate.co.uk/standard-life-plc--sl--/rns/publication-of-circular-notice-of-meeting/201502200702014187F/

Can you tell I have too much time on my hands today

killerkev wrote: »

But there is a gain for example if you hold say 500 shares worth x amount say £2500 these will be replaced with 409 new shares worth around £2500 depending on the share price at the time of conversion (normal market conditions) plus you get a payout of £365 in your pocket to do what you want with, a nice little bonus
Hold more shares and get a larger payout

If your 500 shares were worth £2500 as you say, they are being replaced with 409 new shares and £365 of cash. The 409 new shares will not be worth £2500 otherwise you have created something from nothing.

The new shares will be worth less than £2500 because the company just gave you £365 that was in its bank account at the time that everyone said your share of ownership was worth £2500. If your share of ownership is now worth £2500 it would have been worth £2865 when it had £365 in its bank account. So, you've got confused.

babyj3

molerat wrote: »

So why the big fuss and terms like windfall when in fact there is no gain, they are in effect simply buying 2/11ths of the shares back and cancelling them taking £1.7bn off the value of the business. Would it not have been better to actually state that in the first place ..... but maybe that would not have led to an increase of the share price at the time as that surely was, at least partly, prompted by the expected 73p cash payout.

I couldn't agree with you more
I like you only voted for the sale to go through to get the Capiltal return of 73p per share.There was no mention when asked to vote in Sept 14 of share consolidation. Why? It seems to me that they wanted to dangle the carrot of a special dividend so that shareholders would vote for the sale to go through and we did almost unanimously. If they had told shareholders that they wanted to sell the Canadian business to fund a share consolidation it would not have had the same impact as the prospect of a windfall and I doubt the vote would have been so decisive or even gone through. Who knows?
I foresee a real backlash from unhappy shareholders who feel mislead to say the least
Even now Standard Life haven't given shareholders the chance to vote separately on these issues just the one vote and their letter still talks about a return of value to shareholders when in fact there is no return of value of 73p per share as stated in their letter.
The share price has nothing to do with what was offered to shareholders in return for their vote. I am pleased it is doing well but that has nothing to do with what Standard Life led me to believe I would receive if I voted for the Canadian sale
As for cakes - I could have bought my own piece of cake with my windfall and I haven't even ended up with one crumb
The big fuss was to make us think we would get a nice windfall while Sir Gerry and his helpers were thinking up this smoke and mirrors exercise. I wonder if they got nice big bonuses ?
If there is a shareholder group who brings up a complaint I will be joining them and I hope the national newspapers pick up on the story and show how Standard Life has treated it's shareholders

killerkev

bowlhead99 wrote: »

The market likes stories that companies are in a position to return cash to shareholders. Those companies are more valuable if they can survive making decent profits without having so much cash tied up in the business.

Just reread my paperwork and you are correct !! the share price rose on the original statement , indeed it rose to-day on the results being better than expected so we have a better over-all price who knows what will happen in the future

molerat

The first mention I can see of the share consolidation is January. It was originally sold to investors on the basis of an issue of new shares which could be kept or sold. It may well have been buried deep in the pages of the prospectus but certainly was not on the bullet points.

killerkev

molerat wrote: »

The first mention I can see of the share consolidation is January. It was originally sold to investors on the basis of an issue of new shares which could be kept or sold. It may well have been buried deep in the pages of the prospectus but certainly was not on the bullet points.

I can see how the confusion has arose we are getting cash but also have to except that the share price is now higher than it would have been if the deal had not been completed .
What I find strange is that I am being forced to take the money I would rather have used the DRIP system to reinvest in more shares which I have always done in the past