Can anyone explain the Tesco share deal to a numpty?

forgotmyname

Mums received a letter about her Tesco shares and the dividend they intend on paying out after some recent sales.

(Linl Removed)  I read it on FT.com which I linked to but it seems the link goes to a subscribe page. Google it and

its allowed me to read it...  will this work  !!!!!!/mpqIN

As share prices will drop when they pay the dividend they are issuing new shares?   If you had 190 shares you will

now only get 150 shares?

Pro's/Cons of that?

Many Thanks.

couriervanman

You need a different link nobody is going to subscribe to the FT just to help you

HappyHarry

Tesco have sold some overseas parts of their business, and now have a large amount of cash in the bank from the sale.

This has two important implications ;
1. Tesco is now smaller business
2. Tesco has a large amount of cash to return to shareholders.

Each shareholder will receive a special dividend. Then, Tesco will reduce the number of shares in circulation, which will reduce each shareholders holding. Tesco say that this is because they do not want the share price to fall after the dividend is paid, as it would do otherwise.

There is no need to be concerned, but yes, as with all other shareholders, your mother will hold less shares but gain a large dividend payment. 

In theory, if your mother wanted to keep the same amount of shares, she could use this extra dividend to purchase more Tesco shares.

Links here: 
https://www.tescoplc.com/investors/

forgotmyname

Thanks Harry,  seems that shareholders will still lose though. The value of the 150 shares + dividend compared to the 190 shares

will still be less.  Would that loss be less than the loss of share prices if they left as is?

HappyHarry

There is no loss. Your mother will still own the same proportion of the company as she did previously, and has had the correct proportion of the cash paid to her. Shareholders are not losing out. If they did, who do you think would gain?

Eye2021

Tesco can gain - if there are less shares they can distribute less money to shareholders going forwards, and perhaps pay their Directors and Board more.
If noone is gaining where is all this money that Tesco have received actually going then ?
I have Tesco shares and I'm confused too.

forgotmyname

Thanks again, totally out of my zone here which is why i said a numpty 

150 new shares + Dividend is not enough to buy another 40 shares to get back to 190 shares, thats what she can see.

Is it possible to put it really simply?   Thanks.

Notepad_Phil

Suppose Tesco had 1000 shares and they were each worth £1 making Tesco's value £1000.

Suppose then they wanted to distribute £400 out, which would make the company's value £600 (£1000-£400) - if they kept the same number of shares then the share price would dive to 60p and the share holder would have a special dividend of 40p per share plus a share worth 60p, however Tesco do not want the share price to fall so after the dividend they reduce the number of shares to 600 so that the share price is still worth £1.

In the first case if a shareholder held 100 shares then after the dividend they would receive a dividend of £40 and have shares worth £60 (with each share worth 60p) making a grand total of £100, in the second case they still receive a dividend of £40 but now have 60 shares worth £1 each which still total £100.

EthicsGradient

forgotmyname said:

Thanks again, totally out of my zone here which is why i said a numpty 

150 new shares + Dividend is not enough to buy another 40 shares to get back to 190 shares, thats what she can see.

Is it possible to put it really simply?   Thanks.

It would be, at the moment - the dividend is 50.93p per (old) share. So someone with 190 shares will get £96.76. At the moment, that would buy 9676/239.4=40.42 new shares - if the price stays exactly the same. But it won't stay exactly the same, only roughly.

The main thing is that the total number of shares in the company will also decrease to 15/19ths. If she now owns 190/10,000,000,000 of Tesco, she will still own 190/10,000,000,000 of Tesco after this. She gets a special dividend of about 21% of the share value now, but one might expect their future profits to decrease by a similar amount.

There is one tiny loss - they are rounding the new share numbers down. So if you have 200 old shares, 200 * 15/19 =157.9 - but you'll get 157 shares. The fractions will be combined and donated to a food bank charity - The Trussell Trust.

Eye2021

So what's the point of them doing all this then ?
And who benefits

Thrugelmir

Eye2021 said:

So what's the point of them doing all this then ?
And who benefits

Tesco's have no need of the cash from the sale proceeds of the Thai business. The special dividend is in effect a return of capital to shareholders not the distribution of profits.  To comply with company law and account properly Tesco's have to use this methodology.  

Think of it as the opposite of a rights issue where a company issues new shares to raise cash.