What is a corporate action?
A corporate action could be defined as any event which brings material change to a stock. Splits, rights issues, mergers, acquisitions, and spin-offs are all examples of corporate actions.
Learn more about other types of corporate action
It is important that the investor has a clear picture of what a corporate action indicates about a company's financial affairs and how that action will influence the company's share price and performance.
We have therefore put together a comprehensive list of frequently asked questions concerning corporate actions.
You may also be interested in our jargon-busting glossary of terms.
General Corporate Action questions
Can I change my mind after I have decided upon my intention?
Once you have accepted an offer, it will not be possible for you to withdraw your acceptance or sell your shares during the offer period unless you confirm this with us prior to taking action. Failure to do so will result in any buyback costs being charged onto your account.
What is an Ex date?
Also known as the 'Effective date', all Corporate Actions (except Takeovers) have an ex date. The ex date is a date set by the Stock Exchange to mark a cutoff point for entitlements to Corporate Actions such as Rights Issues. Whoever holds the shares on this date is entitled to whatever is being offered. If you buy on this date you are not entitled and therefore if you sell on this date, you retain the entitlement.
Do I receive fractional entitlements?
Unless your holding is exactly divisible by the terms, you will be left with a fractional entitlement to a new ordinary share. These fractional entitlements will be aggregated with those of other shareholders and sold. Any fractional proceeds, whereby the shares have been sold for less than £50 per share, are retained by the company to offset nominee charges. This is a standard procedure. Clients will only receive fractional proceeds if the price per share is £50 or over. In these cases, payment will be made as soon as practicable after the Corporate Action.
Tax vouchers are not issued separately for each individual stock held. Annual Consolidated Tax Vouchers are sent out at the end of the Tax year, which will include details of income relating to a client's portfolio.
A request for a duplicated Consolidated Tax Voucher must be made in writing to confirm that you have lost/mislaid/never received it - this is an Inland Revenue Requirement.
A £10 charge will be made for each duplicated Consolidated Tax Voucher issued.
Dividend Reinvestment Plans & Scrip Dividends
What is a Dividend Reinvestment Plan (DRIP)?
The Company generally always pays the Dividend in the normal way as a Cash Dividend. However an option is sometimes included to purchase additional shares in the Company with the cash received for the Dividend payment.
What is a Scrip Dividend?
When a Company offers a Scrip Dividend, it issues new shares to shareholders instead of paying a Cash Dividend, if a shareholder wishes. It is usually up to the shareholder whether they wish to receive cash or new shares.
Is there any charge for choosing the share option?
In the case of a DRIP, the Plan Administrator makes a nominal charge, usually 1% of the amount re-invested. This includes Stamp Duty charged at 0.5%. With a Scrip dividend, there is no charge as the Company is issuing new shares.
When will I get the cash or shares?
With both Scrip Dividends and DRIP's, it can take up to 9 days to complete the processing of cash dividends. However, when the cash is credited, the transaction is backdated to ensure that shareholders receive interest from the Dividend Payment date. If you request shares, it can take up to three weeks for the shares to be added to your portfolio in the case of a DRIP, and 1 week in the case of a Scrip.
Why does it take longer for the shares to arrive with a DRIP?
If you request the dividend to be re-invested, it can take up to 3 weeks for the shares to be added to your portfolio. This is because the cash is first paid by the Company to the Plan Administrator. It is then used to purchase shares in the market for every shareholder that chose to re-invest. The Plan Administrator then sends the shares to each shareholder.
I am thinking of selling my holding in these shares. Should I take the share option?
If you do sell your holding before you receive the dividend shares you could end up with few extra shares which you will have to sell separately. A second sale would still incur our minimum dealing cost.
I asked for shares, why has a small cash payment appeared on my account?
This cash payment is the "remainder" of the Dividend that is insufficient to purchase another share in the company in the case of a DRIP. In the case of a Scrip, it is the cash dividend on the number of shares that do not quite entitle you to another share. e.g. The Scrip ratio is 1 new share for every 100 held. If you hold 199 shares you will get 1 new share and the cash dividend on the remaining 99 shares (however, if the Company is paying fractions, it may not pay these amounts if they are below a set threshold.)
What is the difference between a Scrip Dividend and a Dividend Reinvestment plan?
A Scrip Issue involves the issuing of new share capital by the Company, which is free of costs and stamp duty. A Dividend Reinvestment Plan reinvests dividend cash to purchase existing shares in the market to meet shareholders' requirements.
Open Offers & Rights Issues
What is a Rights Issue?
A Rights Issue is a means of raising funds by issuing more shares. It is called a Rights Issue because the Company issues a right to existing entitled shareholders to purchase the new shares before anyone else, normally at a price lower than the current market price. Only holders of the Ordinary Shares on a certain date (Ex Date) are entitled. There will be a ratio, showing how many new shares can be bought and a Call Cost, i.e. how much it costs to buy one new share under the offer. e.g. you can buy 3 new shares for every 5 held at 50p per share. To show your entitlement, the Company issues Nil Paid Rights.
What is an Open Offer?
An Open Offer is another method used to raise funds by a Company, again with a ratio and a Call Cost like a Rights issue, but there are a few differences. First, the entitlement to buy shares at a lower price in the market is non-renounceable, meaning that you cannot offer or sell the right to anyone else. You either take up the right yourself or choose not to. For this reason, when an open offer is announced, you will be allocated sub shares, not Nil Paid Rights. Sub shares, due to the nature of an Open Offer, cannot be sold. The second difference is that, although the ratio sets out your minimum entitlement, you are often able to apply for more than your entitlement. This is called an Excess Application. Shareholders advise how many shares they would like to take up including any excess that they would like to apply for and pay the funds for this amount. Before the Open Offer is announced, the Company calculates how many shares it needs to issue to raise the required funds. After the applications are received it will announce the results and inform of any scaling back. This means limiting the number of shares each person can take up because more shares have been applied for than the Company wants to issue.
How can I find out why the Company wants to raise more money?
The details of the Fundraising will be contained in the Offer Document. If you wish to know the exact reasons, contact us and we will send you a copy of this document. However, you can normally use the following as a guide. Fundraising is usually for one of two reasons. First, that the Company needs to fund expansion in one form or another e.g. to develop a new product, move into a new market or pay for a takeover. Here, it is up to individual shareholders to determine how attractive the company's plans are in order to determine whether to make a further investment. The second reason is to raise additional capital to fund the Company's current operations. It cannot be assumed that all expansion plans are good, or indeed that a businesses is bad because it needs additional funding at some stage.
I am thinking of selling my original holding in these shares. What happens if I do this before I receive the new shares resulting from the Rights Issue/Open Offer?
If you do sell your holding before you receive the new shares, you will have to make two sales, both of which would incur a minimum dealing cost. After the shares are added to your portfolio and you are certain that they are counted as one holding, you can sell them. Beware however, that sometimes the new shares are issued as Registered (or REGD). This means that they are somehow different from normal shares. They might not for example, be entitled to the next Dividend. After the event has passed, they will merge with the existing shares and will count as one holding. However. until this time, they are technically two different shares and will require two separate sales, incurring two lots of commission.
How do I work out my entitlement and the cost of taking it up on a Rights Issue or Open Offer?
If a Rights Issue or an Open Offer is announced, the ratio and Call Cost help to provide the answers. If a Rights Issue is announced and you held the Ordinary shares on the Ex Date, you will be entitled. If, for instance, you held 1000 Smith plc shares on the Ex date of a Rights Issue offering 2 new shares for every 5 held at 20p, then your entitlement would be as follows:
2 new shares for every 5 held on the Ex date means that you could buy 400 new shares
Call cost of 20p per new share purchased = 400x20p = £80.00
When do I pay the Call Cost?
The day for payment (Call Date) will be set in advance. We will inform you of the relevant dates at the time.
Is there any charge for buying the new shares under an Open Offer or Rights Issue?
No, other than the Call Cost, there are no other charges to be paid.
What are Nil Paid Rights?
Nil Paid Rights are issued in a Rights Issue to show your entitlement to buy new shares at a set price. If you wish to buy more shares in the Company because you think the offer is attractive, you will be debited with the Total Call Cost and the new shares will be added to your account. At the same time, the Nil Paid Rights will be removed. Alternatively, you can sell your Nil Paid Rights in the market to allow somebody else to take up the offer. This sale is treated the same as any other trade and is subject to the usual dealing commission charges. The third option is to do nothing, or lapse your rights. If you do this, you may be entitled to a Lapsed Rights Premium by the Company. This is a set amount of money paid for every Nil Paid Right that you lapse. This payment is not guaranteed.
Can I purchase Nil Paid Rights in the market?
Yes, in an ordinary dealing account. The Nil Paid Rights normally cease trading 2 days before the Call Date (please note that ISA regulations prohibit the purchase of Nil Paid Rights).