By Alec Hogg
Nedbank intends trimming its newly bloated shareholder base through buying back 7.6m of its shares from hundreds of thousands of newly inherited shareholders.
The exercise, which will require Nedbank to invest over R2bn to buy back 1.5% of its issued shares, follows yesterday’s distribution by Old Mutual of the bulk of its stake in the bank.
In terms of the unbundling, for every 100 Old Mutual shares owned, investors received 3.2 new Nedbank shares.
This means most of these new owners have been left with parcels of Nedbank shares too small to trade cost-effectively through the JSE, where stockbrokers levy minimum fees of over R100 per deal.
Shares in JSE-listed companies traditionally trade in parcels of at least 100. Anything under this round number is called an “odd lot”.
The bank’s offer provides an efficient way for its new small shareholders to sell without incurring disproportionately high cost. To sweeten the deal, Nedbank intends paying holders of these odd lots a 5% premium to the JSE’s closing price on 5 December.
At the current share price, Nedbank’s buyback offer effectively translates into a cash payment of around R900 for every 100 Old Mutual shares owned by its new shareholders.
The unbundling exercise created a situation where Nedbank’s shareholder base ballooned overnight from its previous 20,000 to over 500,000.
These small shareholders own just R2bn of the R43bn in Nedbank stock that was unbundled by Old Mutual to its shareholders. The group previously owned 52% of the bank. Its newly independent South African arm, Old Mutual Life Assurance Company, will retain an investment of 19.9% in Nedbank
The bank says servicing such a large shareholder base would introduce complexity and substantially increase administrative costs. Nedbank will put the proposal of the odd lot buyback to the vote at a general meeting of shareholders on 22 November.
If the vote is passed, those owning less than 100 Nedbank shares who do not want to sell will have to inform the bank of this intention. Unless they do so, their odd lot will automatically be purchased at the December 5th JSE closing price, plus 5%. The cash will be distributed in the same way as dividends (excepting without the tax) on December 18.
The odd lot share buyback will reduce Nedbank’s Tier One capital ratio from 12.4% to 12%. The exercise will carry administrative and other costs of R24.7m.
