Call Payments: Money to subscribe for new shares
This is a payment made for newly issued shares. It can be as a result of a ‘Float’ on a Stock Exchange, a Rights Issue or an Open Offer. The money sent by the investor to pay for the new shares is the Call Payment and is received by the company issuing.
There can be a series of Call Payments for any new share issues. For example, you can subscribe for an offer that you pay the first half of the cost at the time of the offer, then the second half at a later specified date. Any subsequent payments are called a Call Payment.
Capitalisations: Bonus issue of shares
Capitalisation Issues are the process of converting cash reserves a company holds to issued shares. Existing shareholders automatically receive extra shares and there is no cash payment by the shareholder. This is also sometimes called a Scrip Issue, Bonus Issue, Free Issue or a Stock Dividend. It increases the number of shares in the market and can as a consequence reduce the price of the share.
Consolidations: Redemption of shares in issue
A Consolidation reduces the existing share capital to produce a larger share value. For example, if you held 1000 Barclays shares and a Consolidation was announced at a 1 for 5 basis, then for every 5 shares you hold, you will receive 1 new share, ie 200 new Barclays shares. The new nominal value of the share (expressed as ‘Ordinary 20p’ for example will change in to reflect the new value conversely to ‘Ordinary £1 – ie 20p x 5 = £1). Often a consolidation is undertaken to reduce the number of shares in circulation and improve the price listed as the stock should increase in relation to the reduction value.
Conversions: Exchange of one security type to another
Similar to Redemptions but instead of a particular share being redeemed for cash, it converts into another share. An example would be if you held Barclays Convertible Loan Stock, at the Conversion date you can convert the Convertible Loan Stock into Barclays Ordinary shares.
The Convertible Loan Stock is issued with a ratio for any conversion, for example; 10 units of Convertible Loan Stock receives 1 Ordinary share at conversion.
Dividend Reinvestment Plans - DRIPS: Using a cash dividend to purchase additional shares
Many companies offer a Dividend Reinvestment Plan (DRIP) so that existing shareholders can convert any cash dividends awarded to be used to purchase additional shares in the company.
This is usually a special low-cost arrangement run by an administrator on behalf of the Company. Hoodless Brennan offers DRIP’s at no cost for our account holders – though they are subject to the Company concerned allowing DRIP’s to be operated through our Nominee accounts.
As many shares as possible are purchased under the DRIP from any cash dividend. We do not charge commission to deal on a DRIP for you but stamp duty tax is charged and a small commission by the plan administrator. As only whole shares are bought, there is usually a small excess of cash left over and this is credited to the account in the normal way as a balance or carried forward to the next dividend.
Entitlement Issues & Open Offers: Opportunity to subscribe for new shares at a predetermined price
Open Offers are used to raise funds by a company, using a ratio and a Call Cost similar to a Rights Issue. There are two main differences however:
- The entitlement to buy shares at a lower price in the market is non-renounceable, so that you cannot offer to sell the right to someone else. You can choose not to take up the option. When an Open Offer is announced, you are allocated sub shares, not Nil Paid shares as sub shares cannot be sold.
- Although the ratio sets out your minimum entitlement, you are often able to apply for more if you wish, called an Excess Application. When you apply you state how many shares you would like to take up, including any excess and pay the funds for the total shares applied for. The Company calculated how many shares it needed to issue to raise the required funds and once the applications are received from the Offer it announces the results and informs of any scaling back due to over subscription. If over subscribed the Company limits the number of shares each person can take up because more shares have been applied for than the Company wishes to issue. ( A classic example being the scaling back of the Last Miniute.com issue) Any unused money you have sent is refunded to your account shortly after the allocated shares are received from the Registrar. Note: Companies or the Registrar may see pooled nominee accounts as a single shareholder and can mistake the number of underlying clients and clients may receive fewer shares as a result.
Exercise of Warrants: Subscribe for Ordinary shares in exchange for the warrants at a fixed price
Warrants entitle the holder to purchase Ordinary shares in a specific company at a set price, at a future date. To exercise (use in effect) your Warrants you pay the exercise price to receive the Ordinary share(s) for every Warrant held. As a Warrant holder you aim for the price of the Ordinary share to be above the exercise price so you buy the Ordinary shares at less than market price. Warrants usually can be exercised over a number of years and are tradable, so you can buy and sell them in the open market as a listed instrument.
Interim Redemptions & Option to Redeem: Opportunity or compulsory repayment of nominal value of shares
These are options to redeem a stock for cash – such as Loan Notes, normally at the nominal value. With Loan Notes, Redemption can occur on the interest payment dates. They require 30 days notice before the interest payment date (usually every six months or quarterly) that you intend to redeem. Gilts, B Shares and Redeemable Loan Stock also may have Redemption Options.
Liquidations: Winding up of a company
When a company can no longer trade as its debts and liabilities exceed its capital reserve and is unable to raise additional finance to keep trading, then a Receiver may be appointed. The Receiver then attempts to sell the business as a ‘Going Concern’ otherwise the company assets will be liquidated, i.e. sold off to pay debts.
Shareholders may receive some payouts in the event of liquidation but this usually takes years as ordinary shares holders rate below other creditors in cases of liquidisation. The Inland Revenue confirms to the Stock Exchange when it can state a company has negligible value. The shares are then worthless.
Offers &takeovers: The purchase of a company by acquiring a controlling interest of its shares
A take-over occurs when one company buys another company. Companies can buy the shares in the open market ( as the Glazer takeover of Manchester United was conducted) and it is required under Takeover Panel rules to make a formal offer to the remaining shareholders once its percentage of the company reaches a certain level, ensuring all shareholders receive the same price.
The buying company (known as the ‘Offeror’) offers cash or shares in their company for a shareholders holding in the company it aims to take over. If an Offeror has gained 90% acceptances from its offer to shareholders, it can compulsorily purchase the remaining 10% of shares. If however insufficient shareholders accept the offer and it fails, the offer lapses and the take over fails.
Reorganisations: A change in a company's capital structure
Companies can re-organise their capital structure to raise finance or to pay a dividend. This includes Subdivision and Consolidation as per above.
Rights Issues: Purchase of shares from the company with a discount
Rights Issues are a means of raising finance through issuing extra shares. Existing shareholders are offered the Right to purchase newly issued shares before anyone else, normally at a price lower than the current market price. The Company normally allows only Ordinary Share Holders bought before the Ex Date to have Rights. Usually a ratio shows how many new shares can be bought and the Call Cost to the Rights Holder.
Scrip Dividends: Optional stock issued by the company in lieu of a cash dividend
Scrip Dividends are used by shareholders to increase their holding by taking new shares instead of any cash dividend. Shareholders do not have to pay any dealing charges or stamp duty on the allotment of new shares and the new shares are issued on the dividend pay date.
Schemes of Arrangement: Change in company share structure by court and/or shareholder approval
There are two types of arrangement:
- Mandatory - Where you have no options and are told what will happen to your stock – i.e. for every 10 shares, you will in future hold 15.
- With Options - Where you have a choice – i.e. for every 10 you can have 5 Warrants OR 2 Shares.
Schemes of Arrangement are most often used during mergers and de-mergers of companies.
Subdivisions: Increase the number of shares in issue by decreasing the nominal value
Subdivisions are the opposite of Consolidations. Subdividing has the effect of increasing the number of shares in the market whilst decreasing the nominal value and the market price per share, yet the actual value held is still in equal proportion to the market total.
Tender Offers: Buy back of shares by the company
Tender Offers are used by companies to buyback or repurchase shares in existence by offering to buy back some of their shares from existing shareholders. The Company sets a price range it will buy back at and the Company sets a Strike Price (the actual price it will buy back at).
Tender Offers can also be used in Offers for Subscription (where companies float or for sales of large shareholdings). In this context an agent advertises the shares for sale and invites offers from new investors how much they are willing to pay for a share – once tenders are received the price is then set and buyers advised.
RSS Data Feeds |
HB Corporate |
