In December, BHP announced its intention to undertake an Off Market Buy Back of Shares. The structure of the Buy Back was typical of that in the past, in such that BHP holders had the choice of participation in the offer which consisted of a small capital component and a very large fully franked dividend. The final price at which the Buy Back price was to be determined was dependant on a Volume Weighted Average Share Price (VWAP) of BHP over a specific time frame leading up to the Buy Back closure date, and the discount (up to 14%) to that VWAP that holders were content to offer their BHP Shares into the Buy Back. History has dictated that due to the great value attributed to the franked dividend through the resultant franking credits, the final price was invariably set at the maximum discount, and was often scaled back considerably due to high demand.
Given our analysis, it was of significant benefit to suggest to relevant clients that they offer the entire holding of BHP shares into the Buy Back. The Buy Back closed just prior to Christmas.
The final price for the Off-Market Buy-Back was $27.64 per share, a discount of 14% to the VWAP of $32.1387 per share.
The $27.64 was made up of a capital component of $0.38 per share, and a fully franked dividend of $27.26 per share. The franked dividend results in a refundable franking credit of $11.68 per share.
So, the total value in participation was $39.32 per share which represents a 22% premium to the share price, and an excellent result for those who were able to take advantage of this and participated. The consideration is of course received in two parts, a cash component of $27.64 per share received now, and the franking credit of $11.68 per share received on lodgement of the Super Fund’s 2019 Tax Return.
The Buy Back was scaled Back. For all shareholders, the first 165 shares were bought back, and any shares tendered above that number were scaled back by 58.7%, meaning 41.3% of the holding, above 165 shares were also bought back.
As always, we endeavour to provide additional value to the service we provide to our clients, taking advantage of opportunites such as this wherever possible.
If you have any queries on this or any other matter, please do not hesitate to contact your advisor.