Greencore’s tender offer – what does it mean for me?

I would appreciate any clarification you can provide on the Greencore tender offer. I understood that when Greencore sold its US business, it announced it was returning the proceeds to shareholders by way of a special dividend.

Now, I see that Greencore is asking shareholders to either accept or reject a tender offer for their shares. I am unclear as to what this means. Does this mean that if a shareholder accepts the tender offer that he/she is selling back his/her shares to Greencore?

What happens if a shareholder does not want to sell back his/her shares and therefore does not wish to accept the tender offer?

Will those shareholders who reject the tender offer receive a special dividend?

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Ms G.S., Dublin

This all relates to the shock decision of Greencore to give up on its ambitions for the US market, selling its US businesses for $1.075 billion (€0.93 billion) to Hearthside Foods. For shareholders, that was an unexpected U-turn by the company, which had, only two years previously, made a high-profile acquisition of Peacock Foods in the US to strengthen its operations there.

Ironically, it was Hearthside’s owner, the private equity group Charlesbank Capital Partners, that sold Peacock Foods to Greencore.

At the time, the company said that it would give £509 million (€567 million) of that sale price back to shareholders.

The original plan was, as you say, to do this by way of a special dividend. The proposal was that every shareholder would receive a sum of 72 pence for every share that they owned.

Income tax

However, this ran into trouble from some of your fellow shareholders at the extraordinary general meeting in November which approved the US sale plan. They were concerned that a special dividend would lead to income tax bills for shareholders.

As a result, the company decided to change its approach and arrange the return of capital by way of a tender offer for shares.

Just before Christmas, Greencore said the offer would be priced at £1.95 a share. On the day it was announced, that figure represented a 17.5 per cent premium to the current share price and was just under 12 per cent above the average price of the shares in the market over the previous month.

However, Greencore shares were trading above £2 a share as recently as October and certainly have been above the 195p level for most of their recent history up to January 2018.

At the 195p price, the company will buy back up to just over 261 million of its shares, which is more than a third of all shares in issue – 37 per cent, in fact.

So what does all this mean for you?

If you accept the tender offer, yes, you are selling your shares, or some of them, back to Greencore. How many you sell is, to some degree, down to you.

The tender form that you should have received as part of a package of information from the company requires you to state how many of your shares you want to sell back to the company at the predetermined price. You could tender as little as a single share, or you could tender all of your shares.

However, the company is committing to purchasing only 36.61 per cent of any individual investor’s shareholding. So what’s the point of offering more of your shares back to the company?

Well, if some shareholders choose not to participate – or to offer less than 36.61 per cent of their shares – there will be scope for the company to purchase more than 36.61 per cent of other people’s holdings, assuming some shareholders want to sell more.

There’s no obligation in this. Every shareholder has the option to take part or not.

Special dividend

Why is this a better option for shareholders than a special dividend? It depends on your financial position. While a dividend counts as income and will likely trigger an income tax charge – and possibly also a USC liability – this tender offer is effectively a purchase of capital and subject to the capital gains tax regime.

Given the fluctuations in the sterling/ euro exchange rate, you should err on the side of caution in case the exchange rate goes against you

This makes it potentially more attractive to shareholders in two ways. First, everyone has an annual exemption on capital gains tax for the first €1,270 of the gain they make on the sale of assets. If the 195p price is above what you originally paid for the shares, you can offer for tender just enough to ensure your gain is below this level, meaning you have no tax to worry about.

Given the fluctuations in the sterling/ euro exchange rate, you should err on the side of caution in case the exchange rate goes against you between the time you offer the shares to the company and the time it sends out the cheque. you wouldn’t want to find yourself with the hassle of a CGT tax return over a matter of pennies.

A second benefit of using the capital gains approach is that so many investors are still nursing losses from the sale of assets since the financial crash. They have to be used up before any capital gains tax comes into play so in terms of tax planning, capital gains is more flexible for people in reducing any tax liability.

If you don’t want to sell your shares, that’s fine. You will not benefit from the return of capital but your shareholding will be untouched. In fact, with the company buying back up to 37 per cent of the stock, your percentage holding in the business will rise.

As to your final question, there is no guarantee that shareholders who reject the tender offer will get a special dividend or any other payment. If shareholders tender 36.61 per cent of the entire shares in issue between them – with some offering more and having them accepted because others offer less, or nothing – then there will be no question of a special dividend.

Nothing you do in relation to the tender offer will affect your receipt of the company's final ordinary dividend for last year

If, however, when the whole exercise is complete, less than 36.61 per cent of all Greencore stock has been tendered, the company has said it intends at that point to return the balance of the £509 million by way of a special dividend. How much that would be depends on how much the shortfall is; it will be a fraction of the originally planned 72p a share dividend.

And the company has reserved the right not to offer a dividend at all depending on market conditions at the time. It’s a case of waiting and seeing.

Tender deadline

On a practical level, you need to be aware that the tender is currently open – and has been since December 20th. Anyone looking to tender some or all of their shares must do so before 1pm on January 29th – the date of the company’s annual shareholders’ meeting. That meeting will have to vote to approve the tender plan as it involves more than 25 per cent of the company’s shares – but anyone looking to take part will have to make their decision ahead of the vote.

If it were rejected – which is unlikely – the company would simply not proceed to accept the tendered shares.

Assuming it is approved, the company expects to make the payments by February 7th.

It’s worth noting that nothing you do in relation to the tender offer will affect your receipt of the company’s final ordinary dividend for last year or 3.37 pence per share, which will be paid on February 5th to anyone on the share register as of last Friday, January 11th.

Please send your queries to Dominic Coyle, Q&A, The Irish Times, 24-28 Tara Street, Dublin 2, or email dcoyle@irishtimes.com. This column is a reader service and is not intended to replace professional advice.