National Grid - Gas distribution sale

[77ss]

http://www.investegate.co.uk/national-g ... 00112619R/

Agreement reached to sell 61% of the enterprise - with a further 14% under discussion.

Valuing the network at £13.8bn - significantly higher than the £11.2bn mooted back in 2015.

Completion by 31st March. £4bn to be 'returned' to shareholders. At least 75% as a special in Q2 2017.

[unperplex]

Great.Is anyone buying more of) NG in anticipation of the above ? I think the issued shares in NG Total 3.76 billion, so the special div.would seem to be about £1 per stare, i.e.: 10% at the current share price .

[spiderbill]

Just topped up yesterday. After the post-trump drop it's looking good value and good yield even without this special.

[Lootman]

Great.Is anyone buying more of) NG in anticipation of the above ? I think the issued shares in NG Total 3.76 billion, so the special div.would seem to be about £1 per stare, i.e.: 10% at the current share price .

The share price will of course decline by that pound a share special on its ex-dividend day. So one might also take the view that you'll be able to buy at that discount immediately afterwards instead of collect the dividend. Paying a quid less for a share is not very different from paying a quid more and then getting a quid dividend back, except that you might have to pay tax on that dividend - effectively being taxed on a return of your own capital!

In fact which path you take may be more of a tax decision than an investment decision.

[77ss]

Great.Is anyone buying more of) NG in anticipation of the above ? I think the issued shares in NG Total 3.76 billion, so the special div.would seem to be about £1 per stare, i.e.: 10% at the current share price .

I make it 80p/share ('at least').

No, I shall not be buying more. I may be wrong, but I expect the special to be accompanied by a share restructuring - reducing the capital value of my holding by an amount similar to the special received. TANSTAAFL!

What I did do, months ago, was to make sure all my NG holdings were in a tax shelter - having no desire to pay Osborne's increased dividend tax on the special.

[richfool]

I don't know (and couldn't determine) what the overall net effect on NG's debt will be, if, & when everything is completed. Whether it proportionately reduces or increases its debt will surely effect the market's view of the stock, - particularly if signs of increasing interest rates are becoming evident at that time.

The Transaction imply an enterprise value for NGGD of approximately £13.8 billion*. In consideration for the sale of its equity interest, on completion National Grid will receive a payment of £3.6 billion in cash from the Consortium (subject to certain completion adjustments) and will own a 39% minority equity interest in a new holding company for NGGD ("GasD HoldCo"). In addition, National Grid will receive £1.8 billion from additional debt financing.

Following completion of the Transaction, National Grid intends to return £4 billion of net proceeds to shareholders through the combination of a special dividend (together with a share consolidation) and share buy-backs. At least 75% of the net proceeds are expected to be returned via a special dividend in Q2 of calendar year 2017. Net proceeds are calculated after retaining £0.7 billion of the additional debt financing, in order to maintain the equity value of our 39% interest in NGGD, and after deduction of costs of around £0.5 billion.

[Alaric]

In fact which path you take may be more of a tax decision than an investment decision.

The "feature" that such returns of capital could be structured either as a dividend or as capital got closed, did it not? Whilst compulsory takeovers were a headache to those seeking to keep their capital gains under the annual tax threshold, the same will apply in the future with special dividends to those on the cusp of exceeding £ 5,000 in a year.

National Grid was originally just Electricity, being the distribution network of the CEGB in the nationalised era. Didn't it "diversify" by acquiring/merging with Lattice that was demerged from British Gas?

[Horsey]

I hate share restructurings - hidden deep in the small print of your SIPP provider could be a nice little clause that allows them to keep any fractional shares left over!

[Gengulphus]

I may be wrong, but I expect the special to be accompanied by a share restructuring - reducing the capital value of my holding by an amount similar to the special received. TANSTAAFL!

Yes and no... Yes, the capital value of your holding will drop as the special goes ex-dividend - that's just the normal ex-dividend drop that happens when any dividend goes ex-dividend. Overall value changes happen between ex-dividend dates as the company makes profits and as investors' opinions of the company change, not on ex-dividend dates (except by coincidence) - so as the value of the dividends you'll receive regardless of what you do with the holding rises, the capital value of the holding drops correspondingly... As you say, TANSTAAFL!

The "no" part is that any accompanying share restructuring (typically a consolidation) is not to blame for the capital value reduction. If you have 1100 shares worth 880p as an 80p special goes ex-dividend, then all else being equal, you'll be left with 1100 shares worth 800p each if there's no accompanying consolidation, or 1000 shares worth 880p each if there's an accompanying 10-for-11 consolidation. Either way, your holding's capital value reduces from £9,680 to £8,800...

What the consolidation does change is your future dividend income expectations. Either way, the company will declare the next dividend and its percentage increase on the basis of preceding dividends, unadjusted (unlike what happens in a rights issue, which is a sort-of-opposite event to a special dividend). So without the share consolidation, your dividend income from the holding will be up by the declared percentage increase in the dividend; with it, there will be an additional change, namely that 1/11th of it disappears as your holding shrinks from 1100 shares to 1000. Which you can restore (with some additional trading costs) by using the £880 special dividend to buy the missing 100 shares at 880p - but of course, that means that the special dividend is no longer available to you for other purposes. I.e. it's no longer 'bonus' income - other than for tax purposes, it's just as though the company compulsorily bought 100 of your shares from you for 880p each, and you can now decide whether to top your holding back up to its previous level.

So the difference between special dividends with and without share consolidations isn't a capital value difference - it's something much more dear to the HYPer, namely future income expectations!

Gengulphus

[Gengulphus]

The "feature" that such returns of capital could be structured either as a dividend or as capital got closed, did it not?

No, what was closed was the "feature" that companies could offer UK taxpayers a choice between dividend and capital returns that was effective for UK tax purposes. They can still offer such a choice, but as far as UK tax is concerned, it will be taxed as a dividend regardless of the shareholder's choice (it might still be effective for foreign tax systems). Or the company can make the decision itself, on behalf of all shareholders, and if they choose to structure it as a capital return that offers no 'dividend' alternative to the shareholder, it will be taxed as a capital return.

That does mean that there's almost never any point in companies taking on the extra cost of offering shareholders a choice.

Gengulphus

[unperplex]

Thanks for the above analysis, chaps.Very interesting.I shall await with interest to see what happens to the share price in practise when (and if) a special dividend is declared.I can see the logic that in an ideal world ( with no other factors at work) the share price should decline by the exact amount of the dividend on the ex dividend date.However, although I am quite prepared to see it go down then, I shall be surprised if there is an exact correlation between the amount of the dividend and the decline and I am quite prepared to see the price go up, or down the following day.Surely as always there will be other factors, such as the general economic situation and perceptions of Nat Grid's value in the long term ? If the market were so predictable we would all be able to make far more money than we do.....?

[Lootman]

I can see the logic that in an ideal world ( with no other factors at work) the share price should decline by the exact amount of the dividend on the ex dividend date.However, although I am quite prepared to see it go down then, I shall be surprised if there is an exact correlation between the amount of the dividend and the decline and I am quite prepared to see the price go up, or down the following day.Surely as always there will be other factors, such as the general economic situation and perceptions of Nat Grid's value in the long term ? If the market were so predictable we would all be able to make far more money than we do.....?

Yes and no. It's clear that NGG's share price could go up by a pound over the next few months for various reasons, just like it could go down by a pound. But that will not be influenced by the special dividend per se but rather the overall market perception of NGG.

What is not in doubt is that if a special dividend of a pound is paid out then between the market closing on the day before the ex-dividend date and the market opening on ex-dividend date, the share price will decline by about a pound. There may be a pence or two either way but, absent a massive event happening overnight, the decline is guaranteed.

With the much smaller dividends that companies routinely pay, that effect on the share price is much less marked, for obvious reasons, and I've even known a share price go up on ex-dividend day. But on average the sum total of the share price moves will approximate to the amount of dividends paid out, on the "no free lunch" principle discussed earlier. The market is fairly good at arbitraging away price inefficiencies.

So when people say there is no free lunch here, they simply mean that you cannot get a windfall gain by buying the day before. It's a wash. That doesn't mean other things can't happen in the intervening months to move the share price around, in either direction.

[idpickering]

Just got this in my SIPP held with AJ Bell;

NATIONAL GRID has entered into an agreement to sell a 61% equity interest in its UK gas distribution business to a consortium of long-term infrastructure investors.

" Following completion of the Transaction, National Grid intends to return GBP4 billion of net proceeds to shareholders through the combination of a special dividend (together with a share consolidation) and share buy-backs.

National Grid expects that the Transaction will complete on or prior to 31 March 2017.

To view the announcement in full, please copy and paste the following link into your web browser: http://investors.nationalgrid.com/~/med ... 0Final.pdf

IMPORTANT NOTE - When responding to this message, to enable us to identify and deal with your message in a more timely and effective manner, please ensure you use the following within the subject field of your secure message: CORPORATE ACTION - NATIONAL GRID"

Ian.

[Lootman]

As the NG share price seems to have gone sideways the last year or so, is it time to top up to get the extra divi?

The short answer is NO.

Moderator Message:
Merged Duplicate topics, edited post to reflect