Understanding the Metcash buy-back
Hi James,
can you please advise about the MTS buyback?
Thanks & Best Regards
Kenneth C
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Answer
Hi Kenneth,
We covered this when it was announced – here’s what we wrote: Investors will have the option of tendering in their shares for between a 10-14% discount to the market price and in exchange they’ll get 85c back as a capital component and the rest as a fully franked dividend. It’s likely that this will be done at a 14% discount given the tax benefits involved. This stacks up for tax exempt investors like SMSF’s in pension phase, charities plus individuals that are below the tax free threshold, which doesn’t include MM unfortunately.
Using yesterday’s closing price of $3.90 (the actual price used will be the 5 day volume weighted average price (VWAP) up to and including the offer close date of the 13th August) and assuming a 14% discount, a Metcash holder will receive a capital component of 85c plus a fully franked dividend of $2.50. That dividend will have around $1.07 worth of franking credits attached to it, equating to a value of $4.42 for those in a zero tax environment, or in other words, it’s around a 13% benefit.
That said, there are a few things to consider. It’s marginal for those paying tax north of 15% while these buy backs are generally very popular and often only a portion of each investors shares are taken up. NB: The benefit here is a tax one and therefore dependent on individual investor circumstances. Market Matters provides general advice only, and does not take into consideration the circumstances of individual investors.
