Forum Archive Index - April 2003

["tennyson@caverock.net.nz" <tennyson@caverock.net.nz>]

Hi Daryl,

>
>As announced by the Chairman on 14 March 2003 in his statement
> accompanying  the preliminary results for the year ended 31 >December 2002, 
>Guinness  Peat Group plc ("GPG") intends to make >an off market tender offer 
>to repurchase up to 10 per cent. of each >shareholder's ordinary shares on the 
>basis of five 8% convertible >subordinated unsecured loan notes 
of 20 pence each to be issued by >GPG (UK) Holdings plc ("GPGUK"), (the"Further 
CLNs") for every two >ordinary shares bought back (the "Buyback Offer").  The 
Further >CLNs will rank pari passu, and will be fully fungible, with the 
existing >CLNs of GPGUK with their principal repayable in two 
equal annual >instalments with the option to convert back to ordinary shares in 
the >capital of GPG on 30 June 2004 and 2005.
> 
>Can someone explain what the following means to a small 
shareholder
>like me?  Are they basically Giving me 5 notes at 20p each and 
paying
>8% on them in return for 2 of my shares. 
>
>

Yes.  Provided, that is, you accept the offer.  It is not compulsory to 
accept.

>
>
>I have the ability to buy and sell these notes on the open market
>
>

Generally such notes will be quoted on the New Zealand debt market.  
So in that sense you have the ability to buy and sell.   However, 
sometimes such notes are not as liquid as the equivalent shares.   In 
other words your ability to sell on market is determined by whether 
there are buyers for them.   This is not guaranteed on any particular 
day.   But if you decide to get some of these notes and hold them until 
maturity then the fact that they may not be as liquid as the alternative 
share investment need not be of concern.

>
>
> and take my shares back in
>2004 or 2005 for the same 5 for 2 ratio?
>
>

Just because they offer you five notes for every two shares does not 
necessarily mean that when they convert back they will offer you five 
shares for every two notes.  You will need to study the fine print of the 
offer to see what the reconversion to shares terms are.    You haven't 
quoted enough detail for me to be able to answer that question.

> 
>What are the disadvantages/advantages of
>taking up this offer?
>

The advantage is you will get more income from the capital you 
currently have tied up in those GPG shares (because GPG shares 
have a very low dividend yield).

The disadvantage is that you will lose any capital gain potential from 
any shares you convert to notes, until you convert them back into 
shares.


>
>is it separate from the usual 1 for 10 share split?
> 


Yes.


And lastly two comments on Mike M's response.    

With an off-market offer, this means you will not be able to sell off your 
rights to accept the offer.  However, once you have accepted the offer 
and the offer is closed this doesn't mean that you will not be able to 
sell the notes on the open market.  You may or may not be able to sell 
the notes once they exist.   That is a completely separate issue to 
selling the rights.

Mike M also says that you should be wary of unsecured notes.  This is 
a good cautionary approach to take.  However, not all unsecured notes 
are bad.   Mike suggests that perhaps GPG don't have the cash to buy 
the shares back outright, but I don't think that is the issue in this case.   
I think you will find it is a capital management issue.  The thinking here 
is that if GPG can reduce the number of shares on issue then their 
earnings per share will improve which should cause the share price to 
rise, for all those shares that remain.

Mike M also says that unsecured creditors will be at the back of the 
creditors queue.    He is right in the sense that if anything does go 
badly wrong at GPG the banks will have their loans repaid first, which 
may mean nothing for you as an unsecured note holder.   However all 
bond holders and note holders will still be paid out ahead of 
shareholders.   So because you are exchanging shares for notes you 
are actually at less risk of losing your capital if you accept the offer.   
However, I wouldn't make a big deal out of this.  Both GPG shares and 
GPG unsecured notes would both be classified as relatively less 
secure investments in a balanced investment portfolio.

SNOOPY







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