Virgin Australia (VAH.ASX) – Odd Lot Buyback – A$80 risk free upside

Current Price – A$0.25

Tender Price – A$0.30

Upside – A$85 for odd-lots up to 1666 shares

Expiration Date – 2nd of March, 2018

 

ASX Announcement This idea was shared by Matt (thank you).   This is a similar situation to odd lot tenders in US. Shareholders of 1666 shares or less will be cashed out at A$0.3 vs current market price of A$0.25. Thus odd-lot holders have a chance to collect risk-free A$80 dollars. Not much, but it is given for free. Record date is 6th of March, so shares must be acquired on Thursday or Friday (Australian equities are on T+2 settlement). Distributions will be carried out at the end of April, so there is a two month delay. I am not yet fully sure about the mechanics on how this will be implemented for beneficial holders (announcement does not differentiated between record and beneficial holders, just calls all of them shareholders), but company states:

“Shareholders who hold Unmarketable Parcels will have these bought back by the Group at the Buy-Back Price in full unless they opt out by the closing date of the Facility. Shareholders who participate in the Facility will not have to pay any brokerage or handling fees associated with the buy-back of their shares. All shares bought back by the Group through the Facility will subsequently be cancelled.”

More details on the procedure will most probably be announced on the 9th of March. In any case this being Virgin Group company, I assume beneficial shareholders will be treated fairly. If it turns out not to be the case shareholders will have a chance to opt-out from ‘Facility’ before 13th of April. If any of the members have participated in similar Australian tenders and can shed some light on the process, that would be helpful. Also there should not be any issues regarding taxation:

“In the Group’s view, proceeds from the Facility will be entirely treated as a return of capital, resulting in a Capital Gains Tax event for most shareholders, unless shares are held on revenue account. It is the Group’s view that no portion of the proceeds that participating shareholders receive from the Facility will be treated as a dividend for tax purposes. “

22 COMMENTS

  1. Aidan Rich

    Thanks – good one for us here in Australia! Getting an error message with IB: ‘Value too small for opening position’

    Do IB have a minimum trade size? I can’t see anything on their website. Thanks.

  2. Chris Lloyd

    How do you initiate this position? If I try to buy 1666 shares, it cancels my order and says Error: value too small for opening a position.

  3. Aidan Rich

    update – I worked around this buy buying enough to reach $500 and then selling the rest. Thanks

  4. FM W

    Can’t open a position of 1666 shares on IB, says “value too small for opening position”. Is anyone having the same problem?

  5. Vincent

    When I try to buy it on IB it says “value too small for opening position”. Weird, because its around 400 AUD.

  6. dt

    Buying larger amount (3000 shares does not give error message) and then selling part of it before the ex-date should work (see Aidan’s comment above).

  7. Nathan

    Are you sure it is safe to enter this trade today (which is Friday in Australia)? If expiration is March 2nd and settlement is t+2 I would be concerned electronic documents for the offer would not be transmitted in time to fill out prior to expiration.

    1. dt

      March 6th is record date only to be eligible. Document transmission and actual participation in facility has different deadlines (see press release)

  8. M

    I would strongly encourage those that use brokers that hold stock in a custodians name, not the underlying beneficial shareholder’s name (i.e. Interactive Brokers) to reach out directly to ASX:VAH investor relations team ASAP (see details below) to ensure the Registry doesn’t ignore your holdings by only looking at the entire brokers shareholding for all investors in the company. I have never had issues participating in odd-lot deals with US stocks using Interactive Brokers but decided to use an Australian based broker for this trade as I thought it would be easier than dealing with Interactive Brokers in the region where they aren’t as strong. At the end of the day ASX:VAH is trying to mop up small shareholders so by emailing their IR team saying you want to sell your odd-lot parcel I’m sure they will be incentivised to put pressure on Interactive Brokers or the Registry to ensure that occurs but it wouldn’t surprise me if Interactive Brokers or similar brokers stuff this up with the Registry.

    https://www.virginaustralia.com/au/en/about-us/company-overview/investor-information/investor-contact/

    Kerri Hoffman
    General Manager, Corporate Investments
    Email: investor.relations@virginaustralia.com
    Phone:+61 2 8093 7104

    1. FM W

      I bought 1666 shares using IB. I suppose I’m holding the shares under custodian’s name which is IB. You mean I have to call up VAH’s IR to clarify that I’m the beneficiary holder? What a trouble…

      1. dt

        might make sense first checking with IB on how will they deal with tenders to facility. If I get any info, I will put it here.

      2. M

        @FM W – Anyone that uses IB knows that they hold at a custodian level. My post was simply to encourage investors to speak with ASX:VAH or ask IB to do so in order to understand if it makes sense to do this once off trade with them or use a separate broker that holds stock in the beneficial holder’s name to add an extra layer of safety. IB are weak in Australia and potential issues might pop up if the registry does not adopt a “look through” approach with IB like they do on typical US odd-lots.

        As @dt said it’s an opt-out offer and if it works business as usual on IB you will all be happy with the small risk-free profits. However, if there are issues with IB I guess I will be relieved that I adopted a backup approach to ensure my profit. I hope it’s the former situation and we are all happy. Only time will tell..

  9. dt

    Had a chat with IB. They have not received docs regarding tender yet (these have been posted only yesterday), but said they are expecting the same tendering procedures as with other tenders.

    And here tender docs:
    https://www.asx.com.au/asxpdf/20180305/pdf/43s56407hywgzg.pdf

    Couple points worth noting:
    - shareholders willing to tender won’t have to do anything – tendering is the default action.
    - deadline to opt out of the tender is 13th of April – so there is plenty of time to clarify any details.
    - interestingly, if any additional shares are acquired after record date (on top of 1666), then shareholder is no longer allowed to participate in the facility. So it seems the amount of shares at the closing date (13th of April) is what counts. I am just wondering if the same would be true for new shareholders who acquired 1666 stakes after the record date.
    - It seems there was (and maybe still is) a legal option to participate in the facility from multiple accounts. Multiple IB accounts probably would still not count, as these are aggregated at broker level.

    1. dt

      No, I have not seen anything from IB on this. Their support currently also have no info. Will give an update after I receive any further clarification.

  10. Nathan

    Is there some sort of expiration tied to this? Just confused why broker has no tender docs.

  11. M

    See my comment from March 6th. I assume that the company has decided to treat brokers that hold shares at the custodian level on a cumulative basis. One example might be IB. Virgin [might] cumulatively count the number of shares owned by IB clients which would be well over 1,666 thus the reason they haven’t sent IB or you documents. That is just a guess…

    This potential issue was suggested to me by an acquaintance and the reason I suggested to use another broker that holds stock in a beneficial, not, custodian level. I didn’t see any documents that said if you use IB or equivalent brokers you will not be able to participate but wanted to be extra safe. I am not a lawyer but assume they have a legal right to chose to operate the buyback treating custodian shareholders that way.

    Interested if you get an answer from IB, either way, confirming what’s going/gone on. IB is amazing in the US and Europe so not complaining about their offering in those regions by any means.

  12. Andrew Davis

    Just wondering if there’s any update from IB on this one? The 13th April deadline is fast approaching…

    1. dt

      Andrew I would suggest to raise this with IB via ticket. This is the response I have received so far:

      “When you get a chance can you reply and let me know that the details of the tender you would take part in please?
      - include the number of shares
      - the details of the offer
      - and what you would like”

      1. dt

        Finally got response from IB – now they are saying tendering will not be possible (which is the opposite of what they told me a month ago):

        “We have checked with our custodian but unfortunately this tender offer is not available to us, as our clients’ shares are held in an aggregated account which the registry does not consider our holdings as unmarketable parcel/ odd lot.”

        Still following up.

        1. work 22

          Brokers and custodians hate odd lots in general; let alone odd lots in a foreign country. This is not surprising. Hopefully it can be overcome but IB is not a local Australian broker so their response does make sense.

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