Caledonia Investments special dividend offer...

If any readers of this group are shareholders in Caledonia Investments
Plc, I expect they will have received by now a brick of a document
concerning an elective special dividend they propose to make.

What they propose to do is pay a special dividend of 97% of the NAV per
Ordinary Share at the Ceritification date (expected to be 7 July) for
each ten shares held. If the special dividend is taken, one ordinary
share will be cancelled.

Now, while the stated aim is to return cash back to the shareholder, I
also suspect that this is being used as a way to manage discounts.
Again, 'discount management' is not necessarily a bad thing, and is now
widely used by other Investment Trust managers.

However, for ordinary investors, I'm wondering if there is any
significant benefit for them as opposed to retaining their holdings.
Under the terms of the Caledonia ISA/PEP scheme, any dividends will
only be used to buy more Caledonia shares...

Today, the share price is 1945, the discount is about -1.7, and the
diluted NAV 1978.28.

Working on these figures, taking 97% of the NAV would return 1918.93
per share. Therefore, I assume the discount will need to be more than
3% to make this worthwhile...

This offer does not look great value right now (but who can say what
can happen in a month, in the current conditions), but is there any
opinions to the contrary ?


Neil.

Re: Caledonia Investments special dividend offer...

Hi Neil,

In the absence of other replies, i'll put in my (probably completely wrong)
thoughts...

Like you I came to the conclusion that given the current discount, the offer
looked poor for the reasons that you gave (although the share price has
dropped a bit now, I assume the NAV/share has too).

But in addition, as the Special Dividend is being paid at a discount, the
NAV/share (and therefore share price) would be expected to rise after the
special dividend is paid. As my shares are held in an ISA (and from your
message, I think yours are too), the dividend would have to be used to buy
more shares which would likely be ~3% more expensive than before and also
attract dealing charges.

So I've come to the conclusion that I should not take the special dividend.

Or have I completely misunderstood things.

Trev.


<> wrote in message
news:
> If any readers of this group are shareholders in Caledonia Investments
> Plc, I expect they will have received by now a brick of a document
> concerning an elective special dividend they propose to make.
>
> What they propose to do is pay a special dividend of 97% of the NAV per
> Ordinary Share at the Ceritification date (expected to be 7 July) for
> each ten shares held. If the special dividend is taken, one ordinary
> share will be cancelled.
>
> Now, while the stated aim is to return cash back to the shareholder, I
> also suspect that this is being used as a way to manage discounts.
> Again, 'discount management' is not necessarily a bad thing, and is now
> widely used by other Investment Trust managers.
>
> However, for ordinary investors, I'm wondering if there is any
> significant benefit for them as opposed to retaining their holdings.
> Under the terms of the Caledonia ISA/PEP scheme, any dividends will
> only be used to buy more Caledonia shares...
>
> Today, the share price is 1945, the discount is about -1.7, and the
> diluted NAV 1978.28.
>
> Working on these figures, taking 97% of the NAV would return 1918.93
> per share. Therefore, I assume the discount will need to be more than
> 3% to make this worthwhile...
>
> This offer does not look great value right now (but who can say what
> can happen in a month, in the current conditions), but is there any
> opinions to the contrary ?
>
>
> Neil.
>

Re: Caledonia Investments special dividend offer...

No, I think you've probably got it spot on.

The reduction in the number of shares in issue will boost the Net Asset
Value per share, which is fair enough if you retain a significant
number of shares and invest the proceeds from the special dividend
elsewhere.

But I can see no advantage in taking the dividend and then reinvesting
in more Caledonia shares. Therefore, I'll be declining this offer.

I wonder if this offer has more to do with the internal politics going
on at Caledonia / Cayzer Trust, rather than a genuine attempt to
benefit the wider class of shareholders ?


TW wrote:
> Hi Neil,
>
> In the absence of other replies, i'll put in my (probably completely wrong)
> thoughts...
>
> Like you I came to the conclusion that given the current discount, the offer
> looked poor for the reasons that you gave (although the share price has
> dropped a bit now, I assume the NAV/share has too).
>
> But in addition, as the Special Dividend is being paid at a discount, the
> NAV/share (and therefore share price) would be expected to rise after the
> special dividend is paid. As my shares are held in an ISA (and from your
> message, I think yours are too), the dividend would have to be used to buy
> more shares which would likely be ~3% more expensive than before and also
> attract dealing charges.
>
> So I've come to the conclusion that I should not take the special dividend.
>
> Or have I completely misunderstood things.
>
> Trev.
>
>
> <> wrote in message
> news:
> > If any readers of this group are shareholders in Caledonia Investments
> > Plc, I expect they will have received by now a brick of a document
> > concerning an elective special dividend they propose to make.
> >
> > What they propose to do is pay a special dividend of 97% of the NAV per
> > Ordinary Share at the Ceritification date (expected to be 7 July) for
> > each ten shares held. If the special dividend is taken, one ordinary
> > share will be cancelled.
> >
> > Now, while the stated aim is to return cash back to the shareholder, I
> > also suspect that this is being used as a way to manage discounts.
> > Again, 'discount management' is not necessarily a bad thing, and is now
> > widely used by other Investment Trust managers.
> >
> > However, for ordinary investors, I'm wondering if there is any
> > significant benefit for them as opposed to retaining their holdings.
> > Under the terms of the Caledonia ISA/PEP scheme, any dividends will
> > only be used to buy more Caledonia shares...
> >
> > Today, the share price is 1945, the discount is about -1.7, and the
> > diluted NAV 1978.28.
> >
> > Working on these figures, taking 97% of the NAV would return 1918.93
> > per share. Therefore, I assume the discount will need to be more than
> > 3% to make this worthwhile...
> >
> > This offer does not look great value right now (but who can say what
> > can happen in a month, in the current conditions), but is there any
> > opinions to the contrary ?
> >
> >
> > Neil.
> >

Re: Caledonia Investments special dividend offer...

> > <> wrote
> > > Today, the share price is 1945, the discount
> > > is about -1.7, and the diluted NAV 1978.28.
> > >
> > > Working on these figures, taking 97% of
> > > the NAV would return 1918.93 per share.
> > > Therefore, I assume the discount will need to
> > > be more than 3% to make this worthwhile...

Eh? Are you talking about the discount
immediately before, or immediately after the deal?

Isn't the real question rather: 'How will the
"immediately post-deal discount" compare
to the "immediately pre-deal discount" ' ?

Prior to the deal, someone holding 10 shares has
a value of 10 x (100% - D) x NAV/sh, where
D is the discount immediately prior to the 'deal'.

Immediately post-deal, they have 97% x NAV/sh plus
(100% - D') x 9 x NAV'/sh, where D' is the new discount
and 9 x NAV'/sh = 10 x NAV/sh - 97% NAV/sh,
ie new NAV'/sh = 100.333% NAV/sh.

Hence putting the post-deal value
solely in terms of the pre-deal NAV/sh :-
Value = [97% + (100% - D') x 9.03] x NAV/sh
= [10 - (9.03 x D')] x NAV/sh.

This is equal to 10 x (100% - D) of NAV/sh when D' = 1.11 x D.

So if the pre-deal discount remains 1.7%, the question is surely:
"Will the post-deal discount be *more* or *less* than 1.9%?"

> > <> wrote
> > > This offer does not look great value right now...

How can you say that without knowing what
the discount will be immediately after the 'deal'?

> TW wrote:
> > ... the dividend would have to be used to buy more shares
> > which would likely be ~3% more expensive than before...

The NAV per share would be only 0.333% higher
(see above), so given a similar discount the shares
would be only 0.3% more expensive (not ~3%).

> TW wrote:
> > ... and also attract dealing charges.

Good point!

<> wrote
> But I can see no advantage in taking the
> dividend and then reinvesting in more Caledonia
> shares. Therefore, I'll be declining this offer.

If the discount remains 1.7% before & after the deal, and
dealing costs are less than 1.7%, then you'd be better off.

If the discount is lower after the deal than
before, you'd be even more better off!

Re: Caledonia Investments special dividend offer...

Very good points.

Definitely something to think about.

Tim wrote:
> > > <> wrote
> > > > Today, the share price is 1945, the discount
> > > > is about -1.7, and the diluted NAV 1978.28.
> > > >
> > > > Working on these figures, taking 97% of
> > > > the NAV would return 1918.93 per share.
> > > > Therefore, I assume the discount will need to
> > > > be more than 3% to make this worthwhile...
>
> Eh? Are you talking about the discount
> immediately before, or immediately after the deal?
>
> Isn't the real question rather: 'How will the
> "immediately post-deal discount" compare
> to the "immediately pre-deal discount" ' ?
>
> Prior to the deal, someone holding 10 shares has
> a value of 10 x (100% - D) x NAV/sh, where
> D is the discount immediately prior to the 'deal'.
>
> Immediately post-deal, they have 97% x NAV/sh plus
> (100% - D') x 9 x NAV'/sh, where D' is the new discount
> and 9 x NAV'/sh = 10 x NAV/sh - 97% NAV/sh,
> ie new NAV'/sh = 100.333% NAV/sh.
>
> Hence putting the post-deal value
> solely in terms of the pre-deal NAV/sh :-
> Value = [97% + (100% - D') x 9.03] x NAV/sh
> = [10 - (9.03 x D')] x NAV/sh.
>
> This is equal to 10 x (100% - D) of NAV/sh when D' = 1.11 x D.
>
> So if the pre-deal discount remains 1.7%, the question is surely:
> "Will the post-deal discount be *more* or *less* than 1.9%?"
>
> > > <> wrote
> > > > This offer does not look great value right now...
>
> How can you say that without knowing what
> the discount will be immediately after the 'deal'?
>
> > TW wrote:
> > > ... the dividend would have to be used to buy more shares
> > > which would likely be ~3% more expensive than before...
>
> The NAV per share would be only 0.333% higher
> (see above), so given a similar discount the shares
> would be only 0.3% more expensive (not ~3%).
>
> > TW wrote:
> > > ... and also attract dealing charges.
>
> Good point!
>
> <> wrote
> > But I can see no advantage in taking the
> > dividend and then reinvesting in more Caledonia
> > shares. Therefore, I'll be declining this offer.
>
> If the discount remains 1.7% before & after the deal, and
> dealing costs are less than 1.7%, then you'd be better off.
>
> If the discount is lower after the deal than
> before, you'd be even more better off!