Aviva shareholder return explainer please

Herbalus

I have a very modest amount of aviva shares and struggling to understand the implications of the £4.75bn return to shareholders.

As I understand it, they will return £1 for every share held, so 100 shares will get you £100. Those 100 shares today are worth approx £400 for ease of maths, so that’s a 25% return.

However, at the same time aviva are consolidating shares so that these 100 shares worth £400 today will turn into 75 shares which is worth £300 at the same share price. So I now have the same £400 but now comprising £100 cash and £300 shares, and own the same % of aviva as before. 

I am trying to work out what the point of it all is. What am I missing?

Herbalus

Hang on, i think I’ve got it.

If I then use my £100 cash to buy more aviva shares, I will return to having £400 of aviva shares but will now own more of the company than I did before. So I do see a benefit of the cash return to shareholders. Is that it?

lozzy1965

You might find this interesting:
Stock Buybacks: Benefits of Share Repurchases (investopedia.com)

[Deleted User]

Hi,

from HL:

Definition: Consolidation -

A consolidation is used by a company to reduce the number of shares in issue. Shareholders will be given a reduced number of shares but each share will now be worth more. This will typically result in the new shares having a higher nominal value.

For example a company may consolidate its shares on a basis of one new share for every ten existing shares. This means that if you held 2000 ordinary 10p shares then you would now hold 200 ordinary £1 shares.

The market price per share will rise accordingly to reflect that each share is now worth a larger part of the company. In our example, if the share price closed at 35p on the date of the consolidation then you would expect the shares to commence trading at around £3.50. Normal market fluctuations mean that the share price will probably not open at exactly ten times the previous day's closing price.

Thrugelmir

Herbalus said:

I am trying to work out what the point of it all is. What am I missing?

Aviva as a business has shrunk in size. Having disposed of a number of operations it owns. This is a mechanism to return some of the cash generated , i,e, excess capital it holds,  to shareholders. The hope as an investor, is that the then smaller share value will generate a higher level of dividend return return going forward. Better than a share buyback scheme where often the benefits to shareholders often aren't as transparent. With the company's management themselves being rewarded in part on the company's share price. 

Wannabee_24

Feeling bit thick here on Aviva consolidation/return of capital. Can see will receive a bonus as it were and then my shares will be reduced in number but have higher value.  So if I dont need the cash now is it worth reinvesting this windfall into more, higher-priced shares? Thanks in advance

wmb194

Wannabee_24 said:

Feeling bit thick here on Aviva consolidation/return of capital. Can see will receive a bonus as it were and then my shares will be reduced in number but have higher value.  So if I dont need the cash now is it worth reinvesting this windfall into more, higher-priced shares? Thanks in advance

All things equal the price of the shares won't change. This is the point of the consolidation. Only you can decide whether it's a good idea to invest the return of capital in Aviva.

Thrugelmir

Wannabee_24 said:

Feeling bit thick here on Aviva consolidation/return of capital. Can see will receive a bonus as it were and then my shares will be reduced in number but have higher value.  So if I dont need the cash now is it worth reinvesting this windfall into more, higher-priced shares? Thanks in advance

The remaining shares won't have a higher value after the capital distribution.