Special dividend vs share buyback at Greencore

It is most peculiar that a company like Greencore decides to return the surplus on a deal to shareholders and then ends up only passing it on to those who decide to opt out.

I suppose maybe the thing to do if one wishes to remain a shareholder is to take up the offer now and then buy later when the price inevitably falls. It won’t be surprising, once the tender is completed, if the shares fall back to their original level.

Dividends and distributions should be clear-cut and fair, and this one certainly does not fit into that category.

Mr DG, email

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It is odd, maybe, that a listed company would not have realised at the outset that a special dividend might not be a tax-efficient approach for many of its shareholders.

The share buyback now being offered does, of course, mean you either sell out some or all of your interest in the business, or give up the chance to benefit from the return of capital following the company's sale of its US operations.

Those who opt out will, of course, see their stake in the business rise pro rata but then, with the sale of the US business, that’s a bigger share of a smaller business overall.

Special dividend

It should have been possible I would have thought, with a bit of planning, to offer an option to shareholders or a buyback or a dividend. That way all shareholders would have benefited. Similar arrangements have been put in place in returns of capital at other companies.

Under a special dividend, every shareholder would have benefited equally – though not necessarily after tax. With the buyback, not only can people sell their shares , they can effectively reap the benefit of people not selling by getting a bigger benefit.

They can sell the 36.6 per cent of their holding as of right but they can sell more because other shareholders will not take up the buyback offer for their 36.6 per cent.

Bigger shareholders

And depending on when they bought into Greencore, and at what price, selling now might not make sense.

Ultimately, it has come down to who shouted loudest – and earliest. The bigger shareholders for whom tax would clearly have been an issue made their case at the original shareholders’ meeting. Others didn’t engage at that stage.

It is still possible that a dividend might be offered if the full buyback offer is not taken up but that’s a case of wait and see.’

Fair? Possibly not. Clear-cut? Well it certainly is that. Either way, you need to make your decision by next Tuesday, January 29th.

Please send your queries to Dominic Coyle, Ta, 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.