Caledonia Investments special dividend offer...

Hi Neil,

In the absence of other replies, i'll put in my (probably completely wrong) thoughts...

Like you I came to the conclusion that given the current discount, the offer looked poor for the reasons that you gave (although the share price has dropped a bit now, I assume the NAV/share has too).

But in addition, as the Special Dividend is being paid at a discount, the NAV/share (and therefore share price) would be expected to rise after the special dividend is paid. As my shares are held in an ISA (and from your message, I think yours are too), the dividend would have to be used to buy more shares which would likely be ~3% more expensive than before and also attract dealing charges.

So I've come to the conclusion that I should not take the special dividend.

Or have I completely misunderstood things.

Trev.

No, I think you've probably got it spot on.

The reduction in the number of shares in issue will boost the Net Asset Value per share, which is fair enough if you retain a significant number of shares and invest the proceeds from the special dividend elsewhere.

But I can see no advantage in taking the dividend and then reinvesting in more Caledonia shares. Therefore, I'll be declining this offer.

I wonder if this offer has more to do with the internal politics going on at Caledonia / Cayzer Trust, rather than a genuine attempt to benefit the wider class of shareholders ?

TW wrote:

Eh? Are you talking about the discount immediately before, or immediately after the deal?

Isn't the real question rather: 'How will the "immediately post-deal discount" compare to the "immediately pre-deal discount" ' ?

Prior to the deal, someone holding 10 shares has a value of 10 x (100% - D) x NAV/sh, where D is the discount immediately prior to the 'deal'.

Immediately post-deal, they have 97% x NAV/sh plus (100% - D') x 9 x NAV'/sh, where D' is the new discount and 9 x NAV'/sh = 10 x NAV/sh - 97% NAV/sh, ie new NAV'/sh = 100.333% NAV/sh.

Hence putting the post-deal value solely in terms of the pre-deal NAV/sh :- Value = [97% + (100% - D') x 9.03] x NAV/sh = [10 - (9.03 x D')] x NAV/sh.

This is equal to 10 x (100% - D) of NAV/sh when D' = 1.11 x D.

So if the pre-deal discount remains 1.7%, the question is surely: "Will the post-deal discount be *more* or *less* than 1.9%?"

How can you say that without knowing what the discount will be immediately after the 'deal'?

The NAV per share would be only 0.333% higher (see above), so given a similar discount the shares would be only 0.3% more expensive (not ~3%).

Good point!

wrote

If the discount remains 1.7% before & after the deal, and dealing costs are less than 1.7%, then you'd be better off.

If the discount is lower after the deal than before, you'd be even more better off!

Very good points.

Def> > > wrote