RSAB Tender offer

[hostye]

Wise words above by JWDOOL, was thinking exactly the same. I will be tendering my RSAB

[PrefInvestor]

Reading the RSAB Tender Offer Memorandum Section (11) "What are the minimum thresholds for passing the Resolutions?".

My reading of this is that it requires a) a quorum of voters and b) to pass a resolution has to have 75% of the votes FROM THOSE VALID VOTES SUBMITTED AT THE MEETING.

So it sounds to me like any holders who do nothing and dont vote WONT be counted as a vote against OR be included in the total number of votes used to calculate the 75% passing threshold ?. And so the resolutions might pass if substantially LESS than 75% of all Pref holders have not submitted a valid vote/proxy at the meeting. Especially if most who have voted have done so as they are in favour of accepting the resolutions.

As usual its all expressed in legalistic language and I could be mistaken ???????

ATB
Pref

[Yieldy]

I think this is correct. I vaguely remember schemes where 75% of the class was required, and when no quorum achieved, a general meeting is called immediately. For this they require 75% of those present. Perhaps this is why you only receive the fee if you don't turn up for that meeting!

[GoSeigen]

I think this is correct. I vaguely remember schemes where 75% of the class was required, and when no quorum achieved, a general meeting is called immediately. For this they require 75% of those present. Perhaps this is why you only receive the fee if you don't turn up for that meeting!

As I said earlier 39% of ALL the retail holders need to vote NO to overturn the resolutions (a larger percentage if some don't vote).

So the holdouts here need to get organised pronto and make a persuasive case why other holders should choose not to tender. Without a serious campaign they really are not going to get the support needed, it's as simple as that. i remember JohnEdwards tried to rally support to resist an earlier tender which he thought was iniquitously unfair to shareholders and failed to get the required blocking vote. There's really not much time left and quite likely some media coverage will be needed with a very clear message in order to rustle up the necessary votes.

So maybe stop debating the numbers and get on with campaigning? Please can we hear some solid reasons why hostye, Jwdool and others should change their minds and choose NOT to receive their capital + 22% premium + accrued dividend + voting fee?

@JohnEdwards? @DampSeaweeed? @wmb194?


`GS

[UncleEbenezer]

I think this is correct. I vaguely remember schemes where 75% of the class was required, and when no quorum achieved, a general meeting is called immediately. For this they require 75% of those present. Perhaps this is why you only receive the fee if you don't turn up for that meeting!

As I said earlier 39% of ALL the retail holders need to vote NO to overturn the resolutions (a larger percentage if some don't vote).

So the holdouts here need to get organised pronto and make a persuasive case why other holders should choose not to tender. Without a serious campaign they really are not going to get the support needed, it's as simple as that. i remember JohnEdwards tried to rally support to resist an earlier tender which he thought was iniquitously unfair to shareholders and failed to get the required blocking vote. There's really not much time left and quite likely some media coverage will be needed with a very clear message in order to rustle up the necessary votes.

So maybe stop debating the numbers and get on with campaigning? Please can we hear some solid reasons why hostye, Jwdool and others should change their minds and choose NOT to receive their capital + 22% premium + accrued dividend + voting fee?

@JohnEdwards? @DampSeaweeed? @wmb194?


`GS

I've already voted in favour of take-the-money-and-run.

I suspect that, for a change, I'll find myself on the winning side of this one. If not, that's OK too.

[Yieldy]

My thoughts are this:

1) RSAB are being tendered for at 7.375/122 = 6.05% (dividend over clean price). The 2 pence fee may or may not be received by those tendering (and may in fact be received by those NOT tendering).

2) I find 6.05% quite compelling as gilts of similar duration (c. 17 years) - e.g. TR4Q yield 4.55%. So one would be selling at gilts + 150bps. Some might say this is more than adequate, however I find them convenient to trade in and the structure - cumulative preferential - difficult to value but extremely comforting. I have been involved in prefs for more than 30 years and was around at the inception of many. There really is nothing like the cumulative preferential structure.

3) Intact have (I think) rightly decided not to pursue a partial return of capital (effectively calling them at par). Reputationally this would look poor post the 2018 debacle. Technically they of course could, but better to tender at a fair market price.

4) So what is that fair market price? 2-years worth of dividends over and above the market price pre tender? For me I find this a little low. I think this is (quite correctly) an opening bid by Intact.

5) I am not campaigning for a Unilever pref style-takeout (I have the spreadsheet somewhere but without looking I think it was flat to treasuries). But somewhere in the middle might be a reasonable compromise. To be honest, gilts flat would not harm Intact.

6) So far, of all the people saying they are tendering and rolling into other prefs (eg Avivas and Gen Accs) there has been no comment on tender price beyond the fact that its "at a 22% premium to par". I'm not sure this is good enough. Some of these "rollers" are rolling into prefs at 30% premium to par or more. If Aviva or Gen Acc offer 135p for a pref trading at 130p, is that adequate? Will they roll over and tender because "it's a premium"? Going back to point 2, these are instruments with valuable rights, and should be considered carefully.

7) If the resolution vote fails, the RSAB will undoubtedly trade down a little. I am okay with this. I hope to receive 7.375p each year I hold them. If Intact wish to increase their tender price, I will consider it as carefully as I have this one.

8) We are the ones debating this situation. I am sure there are many "widows and orphans" and "grannies from Worthing" who are not. I am not sure that it would be appropriate for Intact to take it's marbles in and attempt a partial redemption at par if the resolution fails. Therefore I am quite happy with a possible drop in the market price but the opportunity for me to continue taking my dividends.

9) I think that a good precedent should be demonstrated. Choosing an arbitrary price to attempt a cancellation of the class means that other issuers (who will be watching this) will feel strengthened to do similar. With respect to some of the institutional share holders (who will own these prefs and have been consulted with pre the tender), many of them might be under pressure to get rid of them as nowadays it is more and more difficult for funds to hold this type of small and (relatively) illiquid paper. Consequently it is possible that price was not considered by them as carefully as happy holders might. (This liquidity argument is actually a little bit of a joke as prefs are probably more liquid than much of their other fixed income portfolio....)

10) Intact: Bid Gilts + 50 or Gilts flat and I will vote for cancellation and say farewell to an old friend and a piece of paper which when issued provided much needed capital for Sun Alliance. Your pref holders supported you at that time (and do not forget that at such time it was possible to buy a 10-year gilt with an 8.5% yield...).

I will not tender at 122 and will vote No to the resolution. Good luck to everyone!

[88V8]

My thoughts are this:....

You make good points.

My position is skewed by the fact that I have ample income, my tax exposure and rate.
Cap gain is currently more useful to me, and if I take the premium here and roll it into GACA etc and then another 10%+ premium there, I am happy.

It's not as if there will be no more extant Prefs, albeit the universe is certainly shrinking.

Anent the inattentive widows & orphans, they may be the undoing of this tender as the 'do nothing' option does not achieve the desideratum.

V8

[GoSeigen]

I suggest Yieldy to carefully read the terms of his preference shares.

What is a partial redemption? There is no such thing anywhere in the terms. Redemption of any kind is impossible as these are not redeemable shares (and they are not bonds if the terminology was intended to be bond-like).

What is being proposed is either a purchase at the tender price agreed by anyone tendering, or a capital reduction -- neither of those is redemption. The price that shareholders have agreed to be paid in a capital reduction is par. So let's admit that par value is the so-called "valuable rights" being referred to when people discuss retirement of these shares.

It is this fact that makes "22% premium to par" a relevant measure. But to then say that other preference shares trade at "30% premium to par" is to spectacularly miss the point. Those preference shares are trading at that level because investors judge they are unlikely to be taken out at par, the yield compensating for whatever such risk there may be. In many cases that evaluation is correct, for example, NWBD terms state that the preference shareholders as a class may vote on a capital reduction; RSAB terms do NOT have that language. In other cases the market may be wrong, nevertheless it is the market price that you have to pay to purchase those shares: you don't get to say they should be trading at par and therefore the market price is a 30% premium to par. 130p is where they trade, only the issuer can buy lower than that price.

I'm not just pulling this all out of the air. As stated earlier IANAL but I have actually read 1. the offer memorandum 2. the terms of the preference shares and 3. the Company Acts. If anyone doubts what I state is fact I'll be happy to back it up with a reference on request -- or admit error if anyone can show appropriate evidence (but don't quote unreferenced tweets, they are not acceptable as evidence).


On some other points Yieldy is correct, for example, I agree with him that there is little chance of the resolutions failing, both due to the widows and orphans argument, but also because a lot of retail holders actually will find the price attractive and/or properly understand the values and risks.


GS

[Yieldy]

"What is a partial redemption? There is no such thing anywhere in the terms. Redemption of any kind is impossible as these are not redeemable shares (and they are not bonds if the terminology was intended to be bond-like)."

Whoops - mea culpa. "Partial redemption" mentioned in my point 8 is a poor description and correctly pointed out. Of course what I meant was "return of capital" (section 4, part ii of the Sun Alliance listing particulars). I suppose I used "partial" because it did not include the ordinary share class (owned by Intact), and "redemption" because I sloppily think of 100 pence, or par, as similar to redemption..

In any case, I was clumsily describing the possibility of receiving only 100p for the untendered preference shares. Hope the record is straight.

[GoSeigen]

"What is a partial redemption? There is no such thing anywhere in the terms. Redemption of any kind is impossible as these are not redeemable shares (and they are not bonds if the terminology was intended to be bond-like)."

Whoops - mea culpa. "Partial redemption" mentioned in my point 8 is a poor description and correctly pointed out. Of course what I meant was "return of capital" (section 4, part ii of the Sun Alliance listing particulars). I suppose I used "partial" because it did not include the ordinary share class (owned by Intact), and "redemption" because I sloppily think of 100 pence, or par, as similar to redemption..

In any case, I was clumsily describing the possibility of receiving only 100p for the untendered preference shares. Hope the record is straight.

[my bold]

Fair enough, I didn't consider the ords being repaid.

Regarding the 100p preferential right to capital, this issue was thoroughly discussed at the time of RSA's sale. It's worth paying close attention to @ChrisNix's comments as it is clear he had consulted and understood the terms of the shares.

Also it's interesting that some Fools like @AleisterCrowley took heed and sold at c.126p so have gained even relative to the current bid at a premium, while others felt that even a price of 130p was compelling given the hope of an exit at 146p, which has turned out to be a pipe dream. The spread over gilts at the time was some 5% so they were not really overpriced purely on a yield basis. The "flat to gilts" brigade would have argued that the correct tender offer price at the time should have been well over 700p which is plainly nonsense: if their "valuable rights" were worth that much why was the market price 126p???

GS

[mhewett]

Curious as to why redemption offer for RSAB has been so widely accepted by institutional investors. How do they think they can redeploy funds and get a similar return?

[GoSeigen]

Curious as to why redemption offer for RSAB has been so widely accepted by institutional investors. How do they think they can redeploy funds and get a similar return?

Because:

1. They can see a capital reduction at 100p is a real possibility after the tender offer
2. 22% over par and 15% over market is quite generous
3. It's hard otherwise to shift 33% of the issue except at the most liquid times
4. There are plenty of places to get a similar or better return than 5.8% on preference shares
5. They don't live under the illusion that the income is their right for ever
6. Each one thought the others would vote yes and didn't want to be the chump left holding the bag
...


GS

[hostye]

Curious as to why redemption offer for RSAB has been so widely accepted by institutional investors. How do they think they can redeploy funds and get a similar return?

I htink its because most institutional investors will have access to the wider bond market where there are plenty of places to reinvest at attractive levels. Unfortunately the retail investor is generally unable to access the same fixed income products as the institutional guys so they dont have the same options to switch.

It would be nice to see some of the tender offers for these prefs offering an exchange option into a longer maturirty senior or tier2 bond at a similar yield to the tender.

Unfortunately its a bit of a chicken and egg scenario. I think most issuers are wary of retail bond offerings as many dont understand the dynamics, but to be fair to retail guys, they dont have the option of reinvesting into the wider bond market. Its a bit of a joke really that the regulators also try to restrict retail investment into corporate bonds but are quite happy for us to deploy cash into much more risky assets in equity markets such as AIM.

[mhewett]

Curious as to why redemption offer for RSAB has been so widely accepted by institutional investors. How do they think they can redeploy funds and get a similar return?

Because:

1. They can see a capital reduction at 100p is a real possibility after the tender offer
2. 22% over par and 15% over market is quite generous
3. It's hard otherwise to shift 33% of the issue except at the most liquid times
4. There are plenty of places to get a similar or better return than 5.8% on preference shares
5. They don't live under the illusion that the income is their right for ever
6. Each one thought the others would vote yes and didn't want to be the chump left holding the bag
...


GS

Prefs are yielding in excess of 5.8% but where are those "plenty of places" that you can do better than even just that?

[everhopeful]

There are plenty of equities yielding well in excess of 5.8% including FTSE 100 shares. Investment Trusts in the property and infrastructure sectors are also an option.

[GoSeigen]

Because:

1. They can see a capital reduction at 100p is a real possibility after the tender offer
2. 22% over par and 15% over market is quite generous
3. It's hard otherwise to shift 33% of the issue except at the most liquid times
4. There are plenty of places to get a similar or better return than 5.8% on preference shares
5. They don't live under the illusion that the income is their right for ever
6. Each one thought the others would vote yes and didn't want to be the chump left holding the bag
...


GS

Prefs are yielding in excess of 5.8% but where are those "plenty of places" that you can do better than even just that?

Please take a read of this Gilts and Bonds board -- and if you can bear it, review my posts especially those on this board and anything related to banks and bank shares.

Happy to add more if it's still not clear.

EDIT: Ok not preference shares: to name one, MBSR, a PIBS of Newcastle Building Society is on a yield of >7.1%.

GS

[GoSeigen]

I think I overestimated the opposition to this tender based on a few negative posts early in the thread and the incomprehensible tweet that was linked. There has really been no attempt to muster support to reject the tender offer and the resolutions should pass easily.

Given the almost inevitable outcome, and for the benefit of @mhewett and others, where are holders thinking of investing the proceeds?


GS