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Aviva (AV.)

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GoSeigen
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Re: Aviva (AV.)

#416103

Postby GoSeigen » May 29th, 2021, 5:32 pm

absolutezero wrote:
What happens if they 'return capital to shareholders' in the form of a buyback and then the share price drops? Oops.


Why "oops"? The shareholder authorised the buyback at prevailing market prices. She sold her shares back to the company. The price dropped. All looks fine to me.

Oh, you mean what about the remaining holders? Well, of course they considered the buyback price too low to induce them to sell, so they held on. Then the price dropped even further. If they are still bullish about the company they have the perfect opportunity to purchase shares in the market at a discount to the value they perceive the shares to represent. Bingo!

So as I said, why oops?


GS

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Re: Aviva (AV.)

#416115

Postby Dod101 » May 29th, 2021, 6:29 pm

GoSeigen wrote:
absolutezero wrote:
GoSeigen wrote:
It's not theory, it's fact, which really should not be misrepresented... It's a return of capital in company law, in accounting, and in practice -- just as an issue of shares is a raising of capital (a transfer to capital to the company).

GS

How much of this capital return (assuming it is in the form of a share buyback) do you expect to see then?
How much of it will turn up in your portfolio or bank account?


There's a fallacy of composition here, or hasty generalisation if you like. Just because one shareholder receives no payment does not mean that there has been no capital return. Similarly the fact that a shareholder receives a payment does not mean that all shareholders will receive it.

The capital return is made to the shareholders as a class. One individual might participate while another doesn't. Where someone accepts a larger return of capital than the proportion being purchased by the company then necessarily some other holder is accepting less. Whether an individual shareholder wishes to participate is entirely up to her; similarly the extent of her participation. If a shareholder wishes to benefit from the capital return but does not then that is the shareholder's own fault. But it doesn't change the fact that a capital return has occurred.


As for me, my exposure to Aviva is probably too small individually to make it worthwhile participating immediately. But perhaps after some time I will trim. Depends whether I consider the price the buybacks are being made at is high enough.

GS


Yes from the point of view of the company it is returning capital to shareholders as a class because when they authorise their broker to buyback shares in the market, usually within certain parameters as regards price, that is what they are doing. However unless it is a tender offer the chances of any one individual shareholder getting the price authorised is at best a 'maybe' because you are simply instructing a sale and do not know who the buyer is nor I imagine do you care as long as you get what seems an acceptable price.

I do not know why shareholders get so uptight about this subject. As we have said, it is likely that Aviva will use a share buyback because apart from anything else they will want to reduce the number of shares in issue and that is the easy way to do that. It helps continuing shareholders because it leaves less mouths to feed and may help dividend paid per share. You only have to look at Phoenix Holdings to see the opposite effect, issuing large numbers of shares to fund acquisitions notwithstanding that the acquired companies have apparently been earnings accretive from the start. They have held their dividend for a long while and in fact reduced it at one point.

Dod

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Re: Aviva (AV.)

#416173

Postby GoSeigen » May 30th, 2021, 9:07 am

Dod101 wrote:
Yes from the point of view of the company it is returning capital to shareholders as a class because when they authorise their broker to buyback shares in the market, usually within certain parameters as regards price, that is what they are doing. However unless it is a tender offer the chances of any one individual shareholder getting the price authorised is at best a 'maybe' because you are simply instructing a sale and do not know who the buyer is nor I imagine do you care as long as you get what seems an acceptable price.

Agreed; we are talking about maybe 2% (spread, costs) of 5% (buyback quantum), so and individual shareholder "loses" maybe 0.1% of her return by selling in the market and not participating directly in a tender offer. Given buybacks are only one of a number of ways of having your capital returned the loss is even smaller over all time and all capital. So it's not really a point I worry about.

I do not know why shareholders get so uptight about this subject. As we have said, it is likely that Aviva will use a share buyback because apart from anything else they will want to reduce the number of shares in issue

I don't think that is the purpose -- unless you mean that they thereby reduce the capital held by the company. The number of shares is not an important metric is it? But yeah, I see very little economic difference between share buybacks and the other two legal methods of returning capital, dividends and capital reduction. [Unless the market has the share price radically wrong, but then individual shareholders can figure that out and take their own action -- this share-price argument always works against those trying to advance it.]

and that is the easy way to do that. It helps continuing shareholders because it leaves less mouths to feed and may help dividend paid per share.

I wouldn't say it helps continuing shareholders. I'd say it's neutral to them. The company has less capital and its value is also less, but the company has fewer shares in issue and each holder retains a larger proportion of the smaller company so their future cashflows will be proportionately larger.

You only have to look at Phoenix Holdings to see the opposite effect, issuing large numbers of shares to fund acquisitions notwithstanding that the acquired companies have apparently been earnings accretive from the start. They have held their dividend for a long while and in fact reduced it at one point.


Not familiar with Phoenix so will take your word for it.

GS

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Re: Aviva (AV.)

#416203

Postby absolutezero » May 30th, 2021, 11:29 am

GoSeigen wrote:
absolutezero wrote:
What happens if they 'return capital to shareholders' in the form of a buyback and then the share price drops? Oops.


Why "oops"? The shareholder authorised the buyback at prevailing market prices. She sold her shares back to the company. The price dropped. All looks fine to me.

Oh, you mean what about the remaining holders? Well, of course they considered the buyback price too low to induce them to sell, so they held on. Then the price dropped even further. If they are still bullish about the company they have the perfect opportunity to purchase shares in the market at a discount to the value they perceive the shares to represent. Bingo!

So as I said, why oops?


GS

Not necessarily specifically related to Aviva, but more a general comment.
One reason is they would be much better paying off massive amounts of debt (maybe even entering a net cash situation) to make the company more financially secure rather than engaging in flushing cash down the toilet on share buybacks.
When companies have trouble, it is invariably debt related.

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Re: Aviva (AV.)

#416212

Postby Dod101 » May 30th, 2021, 12:16 pm

absolutezero wrote:
GoSeigen wrote:
absolutezero wrote:
What happens if they 'return capital to shareholders' in the form of a buyback and then the share price drops? Oops.


Why "oops"? The shareholder authorised the buyback at prevailing market prices. She sold her shares back to the company. The price dropped. All looks fine to me.

Oh, you mean what about the remaining holders? Well, of course they considered the buyback price too low to induce them to sell, so they held on. Then the price dropped even further. If they are still bullish about the company they have the perfect opportunity to purchase shares in the market at a discount to the value they perceive the shares to represent. Bingo!

So as I said, why oops?


GS

Not necessarily specifically related to Aviva, but more a general comment.
One reason is they would be much better paying off massive amounts of debt (maybe even entering a net cash situation) to make the company more financially secure rather than engaging in flushing cash down the toilet on share buybacks.
When companies have trouble, it is invariably debt related.


It is generally financially efficient to carry a certain amount of debt especially if you are an insurance company or a bank so I find your comments very strange. What is more, if they 'indulge' as you might say in share buybacks that is not, whatever you might think, 'flushing cash down the toilet' . If you think it is why do you think that Discount Control Mechanisms work to control the discount with investment trusts?

These myths are not helpful for new investors who may read some of these comments and believe them.

Dod

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Re: Aviva (AV.)

#416216

Postby GoSeigen » May 30th, 2021, 12:27 pm

absolutezero wrote:
GoSeigen wrote:
absolutezero wrote:
What happens if they 'return capital to shareholders' in the form of a buyback and then the share price drops? Oops.


Why "oops"? The shareholder authorised the buyback at prevailing market prices. She sold her shares back to the company. The price dropped. All looks fine to me.

Oh, you mean what about the remaining holders? Well, of course they considered the buyback price too low to induce them to sell, so they held on. Then the price dropped even further. If they are still bullish about the company they have the perfect opportunity to purchase shares in the market at a discount to the value they perceive the shares to represent. Bingo!

So as I said, why oops?


GS

Not necessarily specifically related to Aviva, but more a general comment.
One reason is they would be much better paying off massive amounts of debt (maybe even entering a net cash situation) to make the company more financially secure rather than engaging in flushing cash down the toilet on share buybacks.
When companies have trouble, it is invariably debt related.


True but this is a problem for creditors, not shareholders (since the capital is not being flushed down the toilet but directly into the shareholders' pockets). Creditors however are protected by company law: buybacks may only be made out of distributable profits; dividends likewise; redemption is written into the company Articles at issue; and capital reduction requires approval of the high court.

Besides, how does a company repay "massive amounts of debt" if they only have a small amount of free capital to return to shareholders? Or do you mean pay off a little bit of the debt instead of distributing that capital? [And just in case you query the figures, Lloyds Bank for example has around £1tr of liabilities. Their buybacks this year would amount to (guessing) around 5% of their £35bn market cap; so 5% of £35bn equals 1.75bn -- which will barely make a dent in the £1tr debt, most of which is probably funded at close to 0% anyway. So repaying debt would be a very dubious activity from the shareholders' PoV.]

GS

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Re: Aviva (AV.)

#416545

Postby absolutezero » June 1st, 2021, 11:05 am

GoSeigen wrote:True but this is a problem for creditors, not shareholders (since the capital is not being flushed down the toilet but directly into the shareholders' pockets)

Please do let me know precisely how much has been flushed directly into your pocket after the event.

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Re: Aviva (AV.)

#418201

Postby Steveam » June 8th, 2021, 6:32 pm

From today’s FT

“Europe’s largest activist investor Cevian has built a 5 per cent stake in Aviva and is pressing the FTSE 100 insurer to make deeper cost cuts and return £5bn to shareholders.

“Aviva has been poorly managed for many years, and its high-quality core businesses have been held back by high costs and a series of bad strategic decisions,” said Christer Gardell, Cevian’s co-founder.

Shares in Aviva rose 3.3 per cent to £4.24 after Cevian released a statement on Tuesday morning.”

Best wishes,

Steve

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Re: Aviva (AV.)

#418220

Postby Snorvey » June 8th, 2021, 8:05 pm

Bloomberg reportedly that the activest investor said that with the right stategy the price and dividend could be doubled

....you could say that about any share though.

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Re: Aviva (AV.)

#418231

Postby GoSeigen » June 8th, 2021, 9:22 pm

absolutezero wrote:
GoSeigen wrote:True but this is a problem for creditors, not shareholders (since the capital is not being flushed down the toilet but directly into the shareholders' pockets)

Please do let me know precisely how much has been flushed directly into your pocket after the event.


I am not the shareholders. I am a shareholder.

https://en.wikipedia.org/wiki/Fallacy_of_composition

GS

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Re: Aviva (AV.)

#418306

Postby absolutezero » June 9th, 2021, 9:25 am

GoSeigen wrote:
absolutezero wrote:
GoSeigen wrote:True but this is a problem for creditors, not shareholders (since the capital is not being flushed down the toilet but directly into the shareholders' pockets)

Please do let me know precisely how much has been flushed directly into your pocket after the event.


I am not the shareholders. I am a shareholder.

https://en.wikipedia.org/wiki/Fallacy_of_composition

GS

Very community minded of you to worry about the other shareholders.
I only really care about my own finances. My point still stands.

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Re: Aviva (AV.)

#418524

Postby GoSeigen » June 10th, 2021, 7:35 am

absolutezero wrote:
GoSeigen wrote:
absolutezero wrote:Please do let me know precisely how much has been flushed directly into your pocket after the event.


I am not the shareholders. I am a shareholder.

https://en.wikipedia.org/wiki/Fallacy_of_composition

GS

Very community minded of you to worry about the other shareholders.
I only really care about my own finances. My point still stands.


There:

viewtopic.php?t=11253&view=unread#p418523

Just received 100% of my share value in the Lloyds pref share buyback. That fact adds literally zero to my or absolutezero's argument. absolutezero's continued protestations make no sense whatsoever because of the fallacy of composition: The fact that I received 100% does NOT mean that every other shareholder will also participate 100%. Some may choose to hold on to their shares; that in turn does NOT mean that capital has not been returned the the shareholders.

As for "community mindedness" that is ad hominem and distraction. Simply lay out your own stall if you have anything of value to add...

GS

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Re: Aviva (AV.)

#418545

Postby Padders72 » June 10th, 2021, 9:56 am

You mean The Natwest buyback presumably.

GoSeigen
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Re: Aviva (AV.)

#418627

Postby GoSeigen » June 10th, 2021, 2:23 pm

Padders72 wrote:You mean The Natwest buyback presumably.


Yes, d'oh! Struggling with all the changes of name ;-)


GS


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