Aviva shares - cancellation / tender of preference shares

bigdanofblyth33

Hi there,
Newbie here. My elderly relative has a few shares in Aviva. They've asked me what this letter means. I *think* I know, but I admit I find the letter impenetrable, and would like to be confident when I explain it to them. Can anyone help translate the attached into layman's terms please? Many thanks. 

kempiejon

Here's my best stab.

Ordinary shares are the ones most talked about and traded on the stock market.
Preference shares are a bit like debt, there is a market for them too.

Let's assume the elderly relative has ordinary shares.

The letter is about preference shares - a different class and not the ordinary shares I've assumed the EP holds.
Aviva are cancelling some preference shares - a bit like paying off a loan, or a bond maturing.

A regulation or part of company's law or the articles of association or some specific technical restriction I'm not bothering to finally verify means Aviva cannot do things like cancel or redeem preference shares without ordinary shareholders' agreement.
EP could vote for or against or abstain and it probably won't make any odds to them. A similar outcome to just doing nothing I expect.

If EP has preference shares then there's more to work out but let's leave that for now.

bigdanofblyth33

kempiejon said:

Here's my best stab.

Ordinary shares are the ones most talked about and traded on the stock market.
Preference shares are a bit like debt, there is a market for them too.

Let's assume the elderly relative has ordinary shares.

The letter is about preference shares - a different class and not the ordinary shares I've assumed the EP holds.
Aviva are cancelling some preference shares - a bit like paying off a loan, or a bond maturing.

A regulation or part of company's law or the articles of association or some specific technical restriction I'm not bothering to finally verify means Aviva cannot do things like cancel or redeem preference shares without ordinary shareholders' agreement.
EP could vote for or against or abstain and it probably won't make any odds to them. A similar outcome to just doing nothing I expect.

If EP has preference shares then there's more to work out but let's leave that for now.

That's so helpful. Thanks for taking the time to reply.

Chloe_G

My mother had this letter too and it didn't make much sense, but I assumed she had received it because she holds preference shares (although I don't know if she does).

TheGreenFrog

The document will be sent to holders of both classes of share.  Most people will have only ordinary shares, and for them the proposal is likely beneficial.  For preference share holders cancellation may not be beneficial - depends on terms of the prefs.

wmb194

TheGreenFrog said:

The document will be sent to holders of both classes of share.  Most people will have only ordinary shares, and for them the proposal is likely beneficial.  For preference share holders cancellation may not be beneficial - depends on terms of the prefs.

The terms are fairly generous. Aviva learnt its lesson from the time a few years ago when it tried to cancel them at par with no special dividend and the ordinary shareholders revolted. The ordinary shareholders are being asked to agree to the special dividend for the prefs on tender/cancellation.

 Aviva owns General Accident and this also concerns its preference shares, LSE:GACA & LSE:GACB. The Aviva prefs are LSE:AV.A & LSE:AV.B.

DRS1

If you hold the prefs outside an ISA or SIPP then you need to think about what might happen and how you will be taxed on it.  If the cancellation gets approved then the tender offer falls away and you would find yourself with a special dividend subject to income tax.  Of course that may not be a bad thing.

wmb194

DRS1 said:

If you hold the prefs outside an ISA or SIPP then you need to think about what might happen and how you will be taxed on it.  If the cancellation gets approved then the tender offer falls away and you would find yourself with a special dividend subject to income tax.  Of course that may not be a bad thing.

And if you bought them above par (100p) you'll be able to book a capital loss to use against capital gains made elsewhere. More valuable these days now that the annual CGT allowance is just £3,000.

kempiejon

wmb194 said:

DRS1 said:

If you hold the prefs outside an ISA or SIPP then you need to think about what might happen and how you will be taxed on it.  If the cancellation gets approved then the tender offer falls away and you would find yourself with a special dividend subject to income tax.  Of course that may not be a bad thing.

And if you bought them above par (100p) you'll be able to book a capital loss to use against capital gains made elsewhere. More valuable these days now that the annual CGT allowance is just £3,000.

I must have jumped to a conclusion here. If bought in the market at above par, even though they'll repay above par, some 145p if tendered, because they were bought above par say at 135p and the par value is 100p there's 35p loss to be booked against other gains?

DRS1

kempiejon said:

wmb194 said:

DRS1 said:

If you hold the prefs outside an ISA or SIPP then you need to think about what might happen and how you will be taxed on it.  If the cancellation gets approved then the tender offer falls away and you would find yourself with a special dividend subject to income tax.  Of course that may not be a bad thing.

And if you bought them above par (100p) you'll be able to book a capital loss to use against capital gains made elsewhere. More valuable these days now that the annual CGT allowance is just £3,000.

I must have jumped to a conclusion here. If bought in the market at above par, even though they'll repay above par, some 145p if tendered, because they were bought above par say at 135p and the par value is 100p there's 35p loss to be booked against other gains?

Yes IF the Cancellation happens.  But if it doesn't and you tendered your prefs then you have a 10p gain. 

wmb194

kempiejon said:

wmb194 said:

DRS1 said:

If you hold the prefs outside an ISA or SIPP then you need to think about what might happen and how you will be taxed on it.  If the cancellation gets approved then the tender offer falls away and you would find yourself with a special dividend subject to income tax.  Of course that may not be a bad thing.

And if you bought them above par (100p) you'll be able to book a capital loss to use against capital gains made elsewhere. More valuable these days now that the annual CGT allowance is just £3,000.

I must have jumped to a conclusion here. If bought in the market at above par, even though they'll repay above par, some 145p if tendered, because they were bought above par say at 135p and the par value is 100p there's 35p loss to be booked against other gains?

Sorry, I'm assuming cancellation at par plus a large special dividend and 2p voting fee (paid as a dividend) is the most likely outcome. 

As DRS writes, in your scenario, where the cancellation fails and you've tendered your shares and the tender goes ahead, you'd have a capital gain and with this Aviva/General Accident situation a (small) dividend and a voting fee paid as a dividend.