B&B rights issue - worth taking up?

If you take up a rights issue like this you are being asked to throw good money after bad.

If you don't take it up you lose as well because either your shareholding is diluted or it becomes crystal clear that it is worthless.

There have been months of dire predictions about B&B - the only people left holding shares (present company excepted of course) are the the very lethargic and the terminally stupid.

The latter will take up the rights issue and the the former will sit on their hands.

Ok that's clear enough...

er or a third possibility they didn't know they had any B&B shares until an email arrived to say would they like to take up the offer.... I can't even remember how or why I have ended up with them.

Also presumably its too late to get rid of them.... mikej

The email that you received, I trust it didn't come from B & B.

er no it didn't - the shares were put with Hargreaves Landsdown for management (not by me) and they emailed. Why would an email from BB be of any interest? mikej

Because they would not have sent such an email.

Could you clarify & expand please.

Do you mean they wouldn't have informed the OP that either, he had shares or that he was eligible for the rights issue?

Ta Dave F.

The rights issue lets you buy shares for 55p. You can buy them on the market for less than that, so it isn't a good deal.

That's what I first thought but wondered if there were any "hidden" perks. Clearly it really is this simple. Thanks mikej

Not by email.

So "nil paid rights" have zero value too ??? I'll bet all the idiots that ran this bank had healthy bonus last year.

They seem to be hovering around 55p at the moment.

Do I understand it right that, all things being equal, it would be better to take up a rights issue at 55p rather than buy them on the open market for

I presume this is why, even at a share price of 55p, the nil paid rights have a value greater than zero?

Reece

Basically, yes.

No.

To expose yourself to the movements in B&B shares, you have two options at the moment. You can either buy a share at 56p (correct at the time of writing), or buy a nil paid right at 2.5p, and keep the rest of the money in the bank.

If the share price falls to 30p at the date the rights are exercised, then if you bought the share, you would lose 26p; whereas if you bought the right, you would lose only 2.5p. On the other hand, if the share price rose to £1, you would gain 44p if you bought the share, or 42.5p if you bought the right. People are happy to take a small hit on the upside potential gain in order to substantially limit the downside risk, so that explains the rights price. Or alternatively, you could put all 56p in B&B rights and have a much bigger potential upside in exchange for a much bigger risk of losing everything.

HBOS rights had a non-zero value even when the shares were below the rights price, and this is the reason for it.