Shareholder better off
SIR — I refer to M Wilfred’s letter to Business Day (Please explain this, June 13). A shareholder is no worse off as a result of the share consolidation and payment of special dividend as, effectively, it reallocates a shareholder’s wealth from a portfolio of shares of a certain value to a smaller portfolio of shares plus a cash payment, totalling the same value.
In Old Mutual’s case, the share consolidation was done to ensure the consistency and comparability of the share price and the company’s earnings per share before and after payment of the R12bn special dividend. Mr Wilfred asks what went wrong in this process.
The payment of the special dividend, which reduces the net assets of the company by that amount, would have resulted in a comparable drop in the share price. But as Old Mutual traded ex-dividend on the same day that our shares were consolidated, that drop was not reflected in our share price. That demonstrates that the consolidation was successful in its aim.
Old Mutual’s shareholders have gained significantly as a result of the sale of the Nordic business, which was the catalyst for this process. Using Mr Wilfred’s portfolio as an example, let me show this.
On the day before we announced the sale of the Nordic business, Old Mutual traded at R14,53, valuing Mr Wilfred’s 24 130 shares at R350 609. When we announced the special dividend payment (February 2), Old Mutual was trading at R18,35, valuing his portfolio at R442 786. On the date Old Mutual traded ex-dividend, and post-consolidation (April 16), Old Mutual traded at R18,84. Under his new number of shares, 21 113, plus payment of the special dividend, Mr Wilfred’s holding was worth R452 005, net of tax, an uplift of 29% ahead of the presale price.
It is important to point out that Old Mutual is paying the special and ordinary dividend on the number of shares held before the consolidation. On the day we paid the special dividend, Mr Wilfred’s consolidated portfolio was worth R401 780, plus dividends net of tax of R54 236, an uplift of 30%.
We would be very happy to address any further concerns that Mr Wilfred may have in respect of his holding in Old Mutual.