Consolidations, capital returns, in specie distributions etc

We monitor various corporate actions by Australian listed companies. Our records of share consolidations, splits, in specie distributions, returns of capital and other events go back about 20 years. It is important shareholders understand the impact of corporate actions on their holding and its prospects.

Consolidations confirm failure

Shareholders often receive letters from their directors like this:

“We are pleased to announce that following shareholder approval received at the General Meeting we have completed a 50-for-1 share consolidation.  This consolidation will deliver a simplified and more efficient share capital base and reposition the stock for broader investor appeal.” 

More appropriately the letter from directors should be couched thus:

“We very much regret having to advise that for every fifty shares you once owned in BadlyManaged Limited, you now have one. This savage reduction reflects the underlying diminution in the value of your shares that has already taken place during our stewardship of BadlyManaged. If your shares are still worth anything it would be in your best interests to sell them now and invest the proceeds in a company in the ASX 200.”

Here is a classic:

If in 2006 you bought 50,000 shares in Antilles Oil and Gas NL (formerly Advance Energy Limited), they were worth $14,500 at the closing price of 29 cents on 2 June 2006. The value of your shareholding gradually dwindled and by May 2014 the shares were trading at a tenth of a cent and your 50,000 shares were worth about $50. In June 2014 the company completed a 1 for 60 consolidation. Your new holding of 834 shares traded around the three tenths of a cent mark and was worth in total about $3. A couple of months later the company again consolidated your shares 1 for 80.  Your new holding of 11 shares was and is worth nothing.

The whole idea behind a consolidation is to restore the company’s share price to investment grade range and thus make it more appealing. Don’t be fooled, the damage has already been done.

Share splits confirm strength

Occasionally a company will split its shares when they get expensive. The purpose is to make the stock look cheaper to buy and increase liquidity. You will end up with more shares but the price will adjust (or at least should adjust) upon quotation such that the total value of your holding remains the same. 

Capital returns

There are a number of ways for companies to return capital to shareholders ranging from selective off-market share buy-backs to in specie distributions and even liquidation. The wide range of mechanisms and their tax consequences are beyond the scope of this webpage. 

As a general rule if you are confronted with a return or reduction of capital, seek the advice of your broker or accountant.

In specie distributions

These are distributions of an underlying asset rather than cash to shareholders in proportion to the shareholders’ interests. Typically, the assets being distributed are ownership interests in subsidiary companies that cannot readily be converted to cash or where there are other reasons for the distribution. Often the intention is for the shares to be in lieu of a dividend and/or to float the subsidiary independently.

Downloading corporate actions files?

In the attached files are about 1450 consolidation events, 280 capital returns, 130 in specie distributions, 80 demergers and 500 other corporate actions. Please note all files are for the calendar year or years and were last updated to 31 December 2019 in February 2020.

To download, please click on the appropriate link below and follow the instructions: