# How does CPL's tender offer work?



## Brendan Burgess (22 Sep 2011)

I have shares in CPl and they have announced a tender offer which is described by Davys as follows: 



> The Board is proposing to return up to €20m of cash to its shareholders  by means of a tender offer at a proposed price of €3 per share, which is  a c.20% premium to the September 13th 2011 closing price. CPL intends  to purchase, in aggregate, up to 6,666,666 ordinary shares from  shareholders at the tender price, and it is the company's intention to  cancel these ordinary shares. Each shareholder will have a guaranteed  entitlement to participate in the tender offer. Those shareholders who  do not wish to participate in the tender offer can retain their full  existing investment in the company. Each of the directors and concert  parties has irrevocably committed to participate in the tender offer on a  pro rata basis. Further details are expected at the announcement of the  EGM.


So the company buys shares from its shareholders at €3 per share. 
It then cancels the shares. 

It's sort of a reverse rights issue. In a rights issue you get to buy shares cheaply. In a tender offer, you get to sell shares at a higher price than they are worth.

Here are my calculations of the theoretical ex Tender price (Note: Original example edited with the actual figures) 



|shares|price per share |total
Today| 100 |€2.70 |€270 
Sell|18 |€3|€54
Shares left|82|€2.63(216/82)|  €216After the sale, I will have 



Cash|€54
Shares|€216
Total|€270Theoretically, the share price should fall to €2.63 after the tender offer. 

If I want to keep all my shares in CPL, then I should sell as many as possible at €3 each and buy them back at €2.63.

*The right thing to do is to take up the tender
*I can sell the shares at €3 each and buy back again at the ex-tender price later.

*I presume that the proceeds are just subject to CGT as with any normal share sale? *


----------



## tyoung (22 Sep 2011)

I see this as a clever way to return 20M euro to shareholders but avoiding income tax for shareholders. Additionally as the share price was higher prior to 2008 long term shareholders may have no capital gain.
 Similar to the way Grafton used to issue special shares to each shareholder and simultaneously  buy them back and cancel them instead of dividends.


----------



## Brendan Burgess (3 Oct 2011)

Details have been posted out

TENDER OFFER TIMETABLE


 The expected timetable is as follows:


     Tender Offer opens for acceptance
   3 October 2011


     Extraordinary General Meeting
   3.15 p.m. on 27 October 2011


     Latest time and date for receipt of Tender Forms and TTE instructions from CREST in relation to the Tender Offer
   11.00 a.m. on 1 November 2011


     The Tender Offer is being made to Qualifying Shareholders on the   register of members of the Company at 5.00 p.m. on 1 November 2011 and   in respect of their Ordinary Shares held at that time.

     Announcement of results of the Tender Offer
   by 8.00 a.m. on 2 November 2011




> Each Qualifying Shareholder  will be entitled to sell up to approximately 17.915 per cent. of the  Ordinary Shares registered in his name on the Record Date under the  Tender Offer, rounded down to the nearest whole number of Ordinary  Shares. Qualifying Shareholders may sell more than their Guaranteed  Entitlement to the extent that other Qualifying Shareholders tender less  than their Guaranteed Entitlement.
> ·      If the aggregate purchase  price of all Ordinary Shares tendered is €20 million or less, all  Ordinary Shares validly tendered will be accepted and purchased at the  Tender Price, subject to the receipt of valid tenders in respect of at  least 5,000,000 Ordinary Shares.
> 
> ·      However, if the  aggregate value of all validly tendered Ordinary Shares exceeds €20  million, not all of the Ordinary Shares validly tendered will be  accepted and purchased. In these circumstances, the number of Ordinary  Shares which will be accepted and purchased will be calculated as  follows:
> ...


----------



## Brendan Burgess (3 Oct 2011)

So, it seems that the correct strategy is to tender your entire shareholding. 

The company will definitely buy 18% of it and you will also sell some shares above the 18%.

That is assuming, of course, that the share price on the market does not exceed 3 in the meantime. If the share price rises to above €3, there would be no advantage in selling your shares. 

Brendan


----------



## Jim2007 (4 Oct 2011)

Brendan Burgess said:


> So, it seems that the correct strategy is to tender your entire shareholding.



Let me start by saying I have no knowledge of this company, but when this kind of thing happens to one of my positions, the first thing I do is try to figure out the value of what I'm about to sell as opposed to the price!  And the second thing I'll want to get is a clear understanding of why the directors are making this offer.

One thing for sure I won't be doing is selling something worth say €6 for €3, in fact if it looks good I'll adding to the position.  Undoubtedly not the popular approach, but there you go.

Depending on the mechanics of the tender, you should also be aware that if the tender is not well received you could end up selling your entire position.

Jim2007


----------



## Brendan Burgess (4 Oct 2011)

Thanks

I meant to work a bit more on the numbers e.g. working out the equivalent of the ex-rights price. 

But if CPL offers to buy my shares for €3 and I can buy them back in the market for €2.70, then I should sell as many as possible. Even if I think that the share is worth €6. 

Brendan


----------



## Jim2007 (5 Oct 2011)

Brendan Burgess said:


> But if CPL offers to buy my shares for €3 and I can buy them back in the market for €2.70, then I should sell as many as possible. Even if I think that the share is worth €6.



Hi Brendan,

Like I said I know nothing about this company and while €2.70 is theoritically the ex-rights price there is no guarantee that the price will ever hit that level or even if it does that you will be able to get shares at that price on the day.

That is why it is important to have some idea of the value and even more importantly why the directors are taking this action.  In most cases where a quoted company finds it has too much capital, it will return the funds to the shareholders in the form of a capital distribution by reducing the nominal value of the shares.  In cases where the company executes a buy back, it is usually because the directors are of the opinion that the shares are undervalued and the best way they can add shareholder value is to execute a buy back.  Buy backs always attract attention for value investors, value funds and so on.

Do you have the url for this company?  I'd like to read the directors explanation...

Jim.


----------



## Brendan Burgess (5 Oct 2011)

http://www.investegate.co.uk/article.aspx?id=201110031637594610P&fe=1

has all the details of the tender offer. 

The Investor Relations part of CPL's website is here: 

[broken link removed]

Brendan


----------



## Jim2007 (5 Oct 2011)

My take on it from a quick read is that the major shareholders see value there, but at the same time don't expect it to be reflected in the market anytime soon.  But fund managers being fund managers, they need a gain sooner so they are putting on the pressure and I expect this has lead to the actions of the directors.

On the other hand, there seems to be every expectation that the price will not be impacted much by this action and given the improvements in both the P/E and dividend ratios possibly even go up somewhat, assuming they can maintain the dividend.

There is provision in the tender for the company to buy up all shares tendered in the event that the total amount tendered is less that €20m, so if you tender the lot you may find that they buy up your whole position, if it does not work out for them.

I avoid service type companies because they are very difficult to value, but at a guess I'd not be surprised if €3 turns out to be a fairly close to your valuations.  But you'll have to be the judge of that one.

It sounds like you're intending to go for it, so the next issue is how much to tender, unless you're happy to sell of the whole position I'd only tender the amount you are happy to sell, just in case it goes pear shaped on them.

Jim.


----------



## Brendan Burgess (5 Oct 2011)

Here are my calculations of the theoretical ex Tender price 



|shares|price per share |total
Today| 100 |€2.70 |€270 
Sell|18 |€3|€54
Shares left|82|€2.63(216/82)|  €216After the sale, I will have 



Cash|€54
Shares|€216
Total|€270Theoretically, the share price should fall to €2.63 after the tender offer. 

If I want to keep all my shares in CPL, then I should sell as many as possible at €3 each and buy them back at €2.63.



> the next issue is how much to tender, unless you're happy to sell of the  whole position I'd only tender the amount you are happy to sell, just  in case it goes pear shaped on them.


I would be delighted to sell all my shares at €3 and buy them all back again at €2.63

The only thing which might go wrong is if they fail to get offers of €10m worth, in which case they will pull the offer.  Then they keep their €20m cash and the share price should not change.  Bizarrely this should be the opposite of a failed rights issue. This could only fail if the owners of the shares feel that €3 is not enough and push the cum-tender price up above €3 before the shares go ex-tender. 

(I am making up some words here to mirror those of a rights issue)


----------



## Jim2007 (5 Oct 2011)

I'm off to the mountains for a few days, so this will be my last post for a while....

Just one question, shareholders of record on what date qualify for the tender offer? Is it possible that the price is already gone ex-tender, otherwise the current price might offer an opportunity for some free cash.....

Jim.


----------



## Brendan Burgess (5 Oct 2011)

> The Tender Offer is being made to Qualifying Shareholders on the  register of members of the Company at 5.00 p.m. on 1 November 2011 and  in respect of their Ordinary Shares held at that time.


Hi Jim

I don't see any opportunity to expoit anything here? 

Enjoy the mountains. 

Brendan


----------



## Brendan Burgess (28 Oct 2011)

The closing date is Tuesday at 11 so the forms would have to be sent off today.

As the share price is 2,70 today and should drop to 2.63 on Tuesday, then it looks as if people should take up the offer and sell as many as possible. 

Even if you think that the CPL shares are worth more than €3 , you should still sell them and buy them back in the market after the tender offer is finished. 



Brendan


----------



## Complainer (28 Oct 2011)

tyoung said:


> I see this as a clever way to return 20M euro to shareholders but avoiding income tax for shareholders. Additionally as the share price was higher prior to 2008 long term shareholders may have no capital gain.
> Similar to the way Grafton used to issue special shares to each shareholder and simultaneously  buy them back and cancel them instead of dividends.



If this is their objective, is there a good chance that Revenue will consider this to be a tax avoidance measure and will simply hit people with the tax bill anyway?


----------



## Brendan Burgess (2 Nov 2011)

> In accordance with the terms of the Tender  Offer, Shareholders who validly tendered to sell less than or equal to  approximately 17.915 per cent. of their shareholdings (their "Guaranteed  Entitlement") will have their tender satisfied in full. Shareholders  who validly tendered more than their Guaranteed Entitlement, will have  their Guaranteed Entitlement satisfied in full and any Ordinary Shares  tendered above their Guaranteed Entitlement will be scaled down (to the  nearest whole number of Ordinary Shares) to approximately 8.679 per cent  of their respective excess applications.


So if you tendered all your shares 



 guaranteed entitlement|17.915%
8.679% of excess 82%|7%
Total|25%
I figure out that around 10% of total shares were not tendered for. Given that the directors account for around 50%(?) of the shares, it suggests that 20% of ordinary shareholders did not offer their shares for tender.


----------



## Brendan Burgess (2 Nov 2011)

> Theoretically, the share price should fall to €2.63 after the tender offer.



They are €2.66 this morning, so that's near enough.

Brendan


----------



## Brendan Burgess (2 Nov 2011)

I spoke too soon. They closed today at 3 euro, the same as the tender price.

This makes no sense unless there was some other story to boost the price.

Brendan


----------

