Can anyone explain the Tesco share deal to a numpty?

EthicsGradient

Eye2021 said:

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

Depends on what you mean by "all this". The special dividend makes sense because they've sold a large chunk of the company, so have cash, to which shareholders have the right.

The 15 for 19 share conversion is a waste of time and work (ie cost) if you ask me - so that the share price stays about the same. This is cosmetic.

Apodemus

Thrugelmir said:

Eye2021 said:

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

To comply with company law and account properly Tesco's have to use this methodology.  

Could they not have taken the option of a share buy-back programme, which would have returned the capital to the shareholders by means of increased share price?  This might have saved the complication of re-issuing shares to a lot of small-scale retail investors.

Linton

Eye2021 said:

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

Presumably Tesco have decided that they cannot run the bit they are selling off at a decent profit. So shareholders will benefit from higher % dividends in the future.

izawa

Your value at the end should remain the same. The only problem is if you end up with fractional shares, it will be donated. So at most you can face loss of 18 shares worth. (You have 1000 shares, equates to 52 lots of 19 shares each + 12 shares, 12 shares will result in fractionals and will be donated to charity)

I am very upset about this move and have voted against diluting the shares.

EthicsGradient

izawa said:

Your value at the end should remain the same. The only problem is if you end up with fractional shares, it will be donated. So at most you can face loss of 18 shares worth. (You have 1000 shares, equates to 52 lots of 19 shares each + 12 shares, 12 shares will result in fractionals and will be donated to charity)

I am very upset about this move and have voted against diluting the shares.

No, it won't be 12 shares each resulting in a fraction; they work out the 15:19 ratio, and then round down. Their circular has explicit examples, including for 1000 old shares, which comes out at 789 new shares (1000 * 15/19=789.47), not "1000 / 19 = 52 remainder 12, 52 * 15 = 780". The most you can lose is  just under 1 share's worth.

Thrugelmir

Apodemus said:

Thrugelmir said:

Eye2021 said:

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

To comply with company law and account properly Tesco's have to use this methodology.  

Could they not have taken the option of a share buy-back programme, which would have returned the capital to the shareholders by means of increased share price?  This might have saved the complication of re-issuing shares to a lot of small-scale retail investors.

The value of share buybacks is questionable.  In the longer term not always of benefit to shareholders. Personally I'd prefer the cash to invest elsewhere. 

Apodemus

Thrugelmir said:

Apodemus said:

Thrugelmir said:

Eye2021 said:

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

To comply with company law and account properly Tesco's have to use this methodology.  

Could they not have taken the option of a share buy-back programme, which would have returned the capital to the shareholders by means of increased share price?  This might have saved the complication of re-issuing shares to a lot of small-scale retail investors.

The value of share buybacks is questionable.  In the longer term not always of benefit to shareholders. Personally I'd prefer the cash to invest elsewhere. 

Yes, me too.  It was just that you suggested that they had to do it this way to comply with company law and accounting.  They have presumably weighed up the options and chosen the current approach for reasons that are deemed to be in the best interests of the company.

Thrugelmir

Apodemus said:

Thrugelmir said:

Apodemus said:

Thrugelmir said:

Eye2021 said:

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

To comply with company law and account properly Tesco's have to use this methodology.  

Could they not have taken the option of a share buy-back programme, which would have returned the capital to the shareholders by means of increased share price?  This might have saved the complication of re-issuing shares to a lot of small-scale retail investors.

The value of share buybacks is questionable.  In the longer term not always of benefit to shareholders. Personally I'd prefer the cash to invest elsewhere. 

Yes, me too.  It was just that you suggested that they had to do it this way to comply with company law and accounting.  They have presumably weighed up the options and chosen the current approach for reasons that are deemed to be in the best interests of the company.

The obvious factor is that when executives and employees are issued shares under remuneration and bonus schemes then existing shareholders become diluted in the longer term. 

Eye2021

For this to be of benefit to the shareholders they should pay the special dividend but not reduce the amount of shares. So to go back to my original post - what is the point ?
They are giving with one hand and taking back with the other, so it appears to benefit noone (except the stockbrokers and lawyers that manage the process).

HappyHarry

Eye2021 said:

For this to be of benefit to the shareholders they should pay the special dividend but not reduce the amount of shares. So to go back to my original post - what is the point ?
They are giving with one hand and taking back with the other, so it appears to benefit noone (except the stockbrokers and lawyers that manage the process).

Eye2021 said:

For this to be of benefit to the shareholders they should pay the special dividend but not reduce the amount of shares. So to go back to my original post - what is the point ?
They are giving with one hand and taking back with the other, so it appears to benefit noone (except the stockbrokers and lawyers that manage the process).

Whether or not they reduce the amount of shares is irrelevant to the shareholders, at least in the financial sense.

If we take this very simplified example; A company with 1 million shares worth 100p each pays a 20p special dividend. Let's consider the shareholder with 10 shares, worth a total of 1,000p:

Option 1- keep same number of shares:
The shareholder receives 200p dividend.
The value of their share fall to 80p each, so now worth 10x80p = 800p
If the company distributes £10,000 of profit in dividends (10p per share) next year, our shareholder will receive 10x10p = 100p.

Option 2 - reduce number of shares:
The shareholder receives 200p dividend.
The value of their share fall to 80p each, so now worth 10x80p = 800p, BUT there is a consolidation to keep the share price as it was, so instead of holding 10 shares then they will now own 8 shares worth 100p each, so now worth 8x100p = 800p
If the company distributes £10,000 of profit in dividends (12.5p per share) next year, our shareholder will receive 8x12.5p = 100p.

There may be very good reasons to keep the share price as it is, and it is unlikely they are going through this process to provide the board or the lawyers with larger bonuses.