Chesnara Open offer/Rights issue.

[Gengulphus]

As some general comments on the issues in this thread:

* Don't expect either rights issues or open offers to increase the value of your shareholding. No guarantees they won't increase it - the market has a mind of its own about such things! - but the general expectation is that their immediate effects will decrease your value slightly, due to their costs. In particular, here existing and new shareholders are going to invest a total of £70m in the company, but the company's value is only going to rise by £66.1m - so £3.9m is going to disappear in costs.

* There is the possibility that non-immediate effects will boost the value of the company by more than those immediate costs - indeed, all rights issues and open offers basically need a justification along those lines. Here, the justification is that they believe the acquisition the open offer will help to fund will end up enhancing the value of the company by more than what they pay for it plus those costs.

* There are two effects on the value of your shareholding in a rights issue or open offer: the value of the company increases, but your percentage holding of the company decreases - i.e. you end up with a smaller slice of a bigger pie. The two effects can be expected to mostly balance out, but be slightly negative overall due to the effect of the costs on the value of the company.

* The term "dilution" only refers to the percentage-holding-reduction effect, not the increased-company-value effect. It's mainly of interest to big holders who actually have a significant say in how the company is run, not to small shareholders: they want to know what the combination of the two effects does. E.g. suppose a company worth £600m does a rights issue or open offer that increases the company value by £160m to £760m, but that results in a third more shares being issued, with the number of shares in issue rising from say 150m to 200m. With the number of shares in issue rising by a factor of 4/3, everybody's existing shareholding becomes 3/4 the percentage that it was previously (which I believe is counted as 25% dilution, though I'm not quite certain about the definition and it might instead be 33.3%): for example, the owner of 30m shares did have 20% of the shares and now has 15% of them - a quite noticeable change in their influence over how the company is run. On the other hand, the small shareholder with 3,000 shares did have 0.002% of the company and now has 0.0015% of it and their influence on how the company is run is still next-to-nothing: they don't really care about the dilution. What they do care about (and so does the large shareholder) is the combined effect of the larger company with the dilution: the value per share has dropped from £600m/150m = 400p per share to £760m/200m = 380p per share, a drop of 5%, and all else being equal (which it probably won't be!) the market value per share and the dividend per share can be expected to fall about the same amount.

* The point of that made-up example being that the size of the overall value reduction that one actually cares about can be (and usually is) much less than the "dilution".

* On to the mechanics of the rights issue or open offer: it is usually made at a significant discount to the prevailing share price to try to ensure that overall, the market takes it up (this one's discount is unusually small - see below). In a rights issue (or a "compensatory open offer", which this is not), the value of that discount is reasonably fairly distributed among shareholders by the rights: those who take up their rights end up paying more than the subscription price because they also give up a right; those who don't either get the proceeds if they sell their rights or the lapsed-rights payment if they keep them.

* A (non-compensatory) open offer like this one does not have that attempt at fair distribution of the value of the discount. Any shareholder can get their fair share of it minus some trading costs: to do so, do a sale after the shares have gone ex-entitlement and take up your basic entitlement to balance each other. You can balance the numbers of shares: sell as many shares as you're entitled to and take up the entitlement, ending up with the same number of shares and some extra cash (don't bother if you won't end up with extra cash). Or you can balance the amounts of cash: sell enough shares to raise the cash needed to take up the entitlements, ending up with extra shares (don't bother if you won't end up with extra shares). In both cases, the "don't bother" remarks are basically saying that the share price needs to be above the subscription price, by enough to make up for the trading costs. (If it's not, then the discount is non-existent or of very small value - and I'm afraid that occasionally losing some trading costs or similar is one of the hard-to-avoid-completely costs of share ownership.)

* If you don't take up your basic entitlement, you lose your fair share of the value of the entitlement. It instead goes to someone else: in this case, to shareholders who take up their excess entitlements, or if there are insufficient such shareholders, to places. You can try to get a bit of that by making an excess application yourself - but it does tie up the cash for all of the extra shares you apply for, and you might only get a considerably scaled-down number.

* In this particular case, it is important to realise that there are basically two corporate actions going on side-by-side: the "Firm Placing" and the "Placing and Open Offer". The latter is essentially what I've described above: an open offer, with the benefit of the discount going to basic applicants in the first place, then to excess applicants in the second place, and then to placees. The former is the bulk of the fundraising and is a straight placing: the benefit of the discount all goes to placees for it. (No, I don't like that aspect of how things work in practice any more than others do. Though at least on this occasion a fairly small discount has been chosen, indicating that placees were not going to be hard to find, and the market seems to have responded to that signal that there are willing investors around by raising the price... I.e. I've seen far worse!)

Gengulphus

[Dod1010]

TheDove

You are entitled to subscribe for up to 3.69 new shares for every 100 you currently hold come what may, only of course up to the closing date of 8 December at 5 pm. It is only if you wish to subscribe for additional shares that the limit of two times your existing holding applies (this is what they refer to as 'excess applications') That is how I read it anyway.

And of course the title of this thread should not refer to a rights issue because it is not and the two expressions are far from synonomous.

[spiderbill]

HSBC sent me a letter which arrived yesterday, so I got to take up the basic 3.69 share per hundred, but they didn't offer the facility to apply for additional shares. So in my case it's been much ado about nothing!

[Gengulphus]

HSBC sent me a letter which arrived yesterday, so I got to take up the basic 3.69 share per hundred, but they didn't offer the facility to apply for additional shares. So in my case it's been much ado about nothing!

Well, if you want to make an excess application, you could always contact HSBC and ask to do so. The worst they can do is say "no", and that leaves you no worse off than you are at present!

Gengulphus

[GN100]

Massive scaling back, applicants will receive approx 3.8 per cent. of the number of Excess Shares applied for:-

http://www.londonstockexchange.com/exch ... 70809.html

Interesting to see what affect this has on the SP once they start trading.

GN

[genou]

Massive scaling back, applicants will receive approx 3.8 per cent. of the number of Excess Shares applied for:-

http://www.londonstockexchange.com/exch ... 70809.html

Interesting to see what affect this has on the SP once they start trading.

GN

They're allotted and tradable in the accounts I manage, which is what I would expect from the published timetable. One oddity is that the scaling back happens at the nominee level, and it seems that Selftrade account holders were less keen than YouInvest holders - got much better allotment at ST than YI. Still waiting for the excess cash to come back of course.

[GN100]

In my Barclays a/c the Basic Open Offer shares have been showing for several days but are not shown as tradeable. They are shown with a purchase cost but no other information. I would suppose that they would have the same SP as my previous holding shows - 334p.

In the end I didn't apply for any of the excess shares, with hindsight I possibly should have done but with the level of the scaling back it might not have made very much difference. I have a diary note (not sure where it came from) that the new shares would be tradeable from 22/12 but it seems yours are tradeable now? In that case the current SP is related to the new total amount of shares in circulation, not far from Jon46's calculation.

GN

[Jon46]

In my Barclays a/c the Basic Open Offer shares have been showing for several days but are not shown as tradeable. They are shown with a purchase cost but no other information. I would suppose that they would have the same SP as my previous holding shows - 334p.

In the end I didn't apply for any of the excess shares, with hindsight I possibly should have done but with the level of the scaling back it might not have made very much difference. I have a diary note (not sure where it came from) that the new shares would be tradeable from 22/12 but it seems yours are tradeable now? In that case the current SP is related to the new total amount of shares in circulation, not far from Jon46's calculation.

GN

The new shares were admitted yesterday.

My new shares were only eventually allocated by ATS this afternoon, so yours will probably turn up on BSL over the weekend and they will indeed have the same sp as all the others, being pari passu in all respects.

I did not apply for more than the basic alloc either because I thought it was a waste of effort, usually is. You wondered what effect the excess allocs would do to the share price, well, bearing in mind that they represent a very small proportion of the combined firm placing, which is the larger slice, plus the basic offer, no effect will be seen that cannot be absorbed by normal market movements.

As I posted before, if the sp softens, I'll pick up enough to cancel out the dilution. Won't act unless they go below £3.

I glad my estimate post corporate action sp turned out to be on the money, I in fact thought that it would be a little softer as often happens,so the market thinks it is a good deal.

Jon

[peterh]

I did not apply for more than the basic alloc either because I thought it was a waste of effort, usually is.
Jon

I did apply for some extra shares (not a huge proportion of my holding) as Chesnara was in my top up area and I'd get them with no additional costs and at potentially lower than the SP. They appeared in my Halifax account on Thursday. My application for 'excess' shares was reduced, but my holding has increased by 10% overall. This what they said:

Please be aware that elections made under the Excess Facility have been subject to scaling back. Subsequently, elections in excess of a shareholder's basic entitlement have been satisfied by up to 22.22222 percent in respect of the number of Excess shares applied for.

My average cost per share has gone down a bit, but it remains to be seen what happens to the dividend per share.

[Jon46]

Well done peterth.

You obviously wanted to increase your holding and got way more additional allocation than the bulk of people who asked, judging by the released figures.

Over many years, I have developed a general dislike for such excess bidding processes, having had experiences of varied outcomes. If I think it is good deal, I take up my basic alloc., as in this case.

But I dislike asking for more because I dislike not knowing the outcome, ie having to ask for a lot more in the hope of getting sometimes a very few, sometimes a great deal too many. It also ties up that capital over a not negligible period when other opportunities might appear. For example in this case such capital could have gone to PHNX at under £7, similar outfit(although more zombie), much better forward yield, although I am overweight on that one anyway.

I'll wait to see if I can get some more CSN well below £3 in the next few months, if it does not happen, too bad and something else will have that slice of capital.


Jon

[peterh]

Well done peterth.

You obviously wanted to increase your holding and got way more additional allocation than the bulk of people who asked, judging by the released figures.

Jon

The proportion of excess shares allocated depended on how and where your shares were held. If they were held directly, it looks like you got 3.8% of your request. If held through a nominee, then the percentage varied as each company presumably managed their own 'pot' of CSN shares.

Looking at the Chesnara discussions on iii.co.uk and doing some rough calculations, people using ATS got 46%, Selftrade was 18% and iii was 12%. AJBell was lower and, obviously (from my earlier post), Halifax was 22%.

Peter

[88V8]

Through TD, I seem to have got 80% of the extra.
Perhaps smaller applicants were scaled back to a lesser degree.

V8

[carioca]

Like others here, I did participate in the offer. (Account is with Charles Stanley Direct.) Based on my holdings, I was entitled to 324 new shares. To keep my numbers round, I asked for another 76 extra shares. Both requests were filled and the money was taken out of my account.

Today, to my surprise, I noticed a credit entry with the following information:
28 Dec 2016 CHESNARA OPEN OFFER EXCESS REFUND CHESNARA NEW ORD GBP0.05 (EXCESS LAP BDJ0B20 0.00 222.00

Am I the only one, or has this also happened to others? Of course, I like getting some unexpected money credited to my account, but I'm also puzzled about why I'm getting this. As far as I know, in the case of an open offer you don't get anything if you let the offer laps. Besides, I have taken up my full entitlement. So no reason for a refund.

Before sending this off, I went back to have another look at my holdings. And there was the explanation. The 76 extra shares have disappeared. But I paid 228 quid for them, so I'm 6 pounds worth off in the process. I'm wondering if others had similar experiences.

[dougal60]

Yes I also got a £6 deduction from Charles Stanley..
I expect this is somewhere in the small print along with the recent 15% increase in dealing fee from £10 to £15.
I applied for quite a lot of extra shares within the stated 150% limit but only got about 2.5% above the 3.69% rights.
I did much better at Alliance where I got about 30% of my application.
Can't say I was impressed by the tiny allocation to existing shareholders.

[Dod1010]

Maybe Alliance have still go to catch up? I do not see why Alliance would be treated any better than anyone else. Surely it would be a pro rata scaling back.

Anyway they were a good buy at £3 it would seem as the share price has been rising ever since.

[carioca]

I have to correct what I said above.
I did in fact get TWO extra shares, which explains the difference of 6 pounds. So, I didn't lose any money with all this movement in and out of my account.

Still, I have to say that this was a very odd way of handling an open offer. And Charles Stanley made a terrible job of keeping their customers informed. Well, next time I'll think twice before I ask for more.

[Dod1010]

As Dylan said 'Don't think twice it's alright'.

od

[XFool]

All settled by 23 December. Closing price today, 30 December: 365.25p

[jackdaww]

All settled by 23 December. Closing price today, 30 December: 365.25p

==================

same here - gained about £75 on the deal at the current price - so no big deal - just a small special divi.

.

[Gengulphus]

I have to correct what I said above.
I did in fact get TWO extra shares, which explains the difference of 6 pounds. So, I didn't lose any money with all this movement in and out of my account.

Still, I have to say that this was a very odd way of handling an open offer. ...

It looks completely standard for an open offer excess application facility to me, with the only oddity being that you at one point saw yourself as having received all 76 shares you applied for. When a company makes an open offer, it says what it's going to do about entitlements not taken up by shareholders: an excess application facility is one option and is the one Chesnara took. Under it, shareholders who take up their entitlements can apply for more: they decide how many more, up to some limit specified by the company (which is usually pretty high - in this case, up to 200% of the number of shares already held, when the basic entitlement was just 3.69%). They have to send the company full payment for all the shares applied for with the application - the company will not be willing to take the risk that someone is allocated shares that they haven't paid for!

During the open offer. the company learns how many shareholders take up their basic entitlements, and thus how many shares that were on offer weren't taken up under basic entitlements. They also learn how many shares were applied for under the excess application facility: dividing the number not taken up under basic entitlements by the number applied for under the excess application facility tells them what proportion of the excess applications should be satisfied. They then send those who applied under the excess application that percentage of the number of shares they applied for, rounded down to a whole number of shares, and the "change" from the cash that accompanied their application.

When an open offer is as popular as this one appears to have been, that both makes the number of shares not taken up under basic entitlements relatively small and the number applied for under the excess application facility relatively large - and so the proportion of excess applications that are satisfied can be pretty small. On this occasion, it was about 3.8% of them, and 3.8% of the 76 shares you applied for comes to just less than 3 shares, so rounds down to 2 shares.

So the outcome of you having received back 2 shares and the application price of the other 74 shares that you applied for and were not allocated is exactly what I would have expected. And Charles Stanley really do have to have removed £228 from your account and later refunded you £222, because the company will have insisted on those payments.

If they showed your account as being up by all 400 shares you applied for during market hours, so that you could have sold them, I think you have good cause for complaint: that could have led to you inadvertently selling more shares than you owned. If however it was only a temporary state outside market hours, with the system catching up and correcting itself before the market opened, then there's no major issue - you've got a minor cause for complaint about the system misleading you, but it couldn't actually have led to you doing something financially damaging.

Also, there is a period when such things are in "limbo": the broker has sent off the application to the company, and the client is entitled to the results of that application, but the broker doesn't actually have anything back yet. On at least some such occasions, I've seen Charles Stanley record the fact that the client is entitled to the outcome with 'bookkeeping' entries in the portfolio - i.e. entries that aren't actual shares, but entitlements to the outcomes of corporate actions. The give-away that that's been done is that they'll be separate items from the main shareholding in the portfolio listing, and not actually sellable. So if you saw your number of shares up by 400 shares in total at some point, you might well have good cause for complaint (subject to the bit about market hours above), but if you saw a separate entry for 400 shares, or two separate entries for 324 and 76 shares, or something similar involving separate entries, it was probably just a matter of 'bookkeeping' entries that looked a bit like actual shares.

... And Charles Stanley made a terrible job of keeping their customers informed. Well, next time I'll think twice before I ask for more.

Yes, applying under an excess application facility is definitely a bit of a gamble. The cost is maybe a couple of weeks loss of the use of the money, so pretty low at current interest rates. The payoff can be reasonably big, but it's quite rare for it to be so: it requires both that the shares are a bargain at the application price and that the open offer isn't a popular one (so that excess applicants get a good proportion of what they apply for). I.e. it basically requires the market to misjudge the quality of the open offer - which is something it does occasionally do, but it's not all that frequent!

Gengulphus