buyback, page-15

"I agree with Potts in the Sunday papers"


Potts is a lightweight.

The big picture sums are simple.
If you like BHP, ignore the buy-back (unless you are a 0% tax-paying charity).
If you hate BHP, the buy-back is a tax effective way to exit.

For those who are contemplating a sell into buy-back / repurchase on-market :

If you are a super fund with a marginal tax rate of 15%, the dividend rebate (30%-15%) will just about cover the buy-back price discount of 14% VWAP.

You also stand to gain if you are relatively recent shareholder with a high cost base *and* you already have a realised Capital gain or you plan to exit a profitable position for whatever reason eg dissatisfied with FGL or some such. The effective CGT rate for super funds is 10% so you will gain $1 for each $10 of realised capital loss in the BHP buy-back (deemed capital component of the buy-back price is $2.50)

Therefore, if you rate BHP as a long-term hold, you can just about maintain your equity and realise a small (in my view relatively immaterail profit). You also benefit from resetting your cost base to a higher price.

If you are a high MTR individual, forget the buy-back.
If you are not a high MTR individual, you shouldnt worry about the buy-back. You have bigger things to worry about, like earning a higher income ... hehehehe

What about the short-term prospects of BHP's market price.
All things being equal, those who want to sell-into the buyback would like to see a high price this week, so you would assume that big funds who stand to extract a highr price could in theory *help* keep the VWAP high.

But there is a limit to this gambit.
BHP have stated that if they feel that the process is compromised, they will abandon the Aussie buyback and buy on the LSE where BHP is going cheaper