WT That’s a very good point about divs. I think the answer for...

WT That’s a very good point about divs. I think the answer for PGH is almost certainly “NO”, for the reasons below. There are several important differences between the contexts of the BLD and PGH bids. Also, the BRC of Boral has made a strong effort to negotiate with Seven for a better deal for shareholders, whereas PGH’s IBC largely gave up after the bid was increased to 84c.

The recent changes inthe Seven/Boral bid are summarised in theSecond Supplementary Target’s Statement in relation to SGH Offer Section 1c

“Background to change in BRC recommendation”

(i) Seven has waived its condition for paying its maximum cash component. It was $1.50 cash minimum, which would increase to $1.70 if they reached a very high level of acceptances. Seven will now pay $1.70 cash for future acceptances. This aspect is not relevant to the bid for PGH because there is no such conditional step in the offer price.

(ii) BLD will pay a 26c div now. The cash value of 26c will be deducted from the $1.70 cash component of the bid, so there is no change to the total cash amount that BLD holders will get but they will now also get franking credits worth 11c. This extra benefit is apparently not excluded by the law, because it is a decision by BLD not a change in the offer by Seven. Whether holders will be better off probably depends on their marginal tax rate and their capital gains position. The FCs are of course taxable. If holders don’t like it they can sell on market before BLD goes ex div (part of the reason for (iii) below).

(iii) On market buyback announced by BLD to assist liquidity, for shareholders who want to sell on market. This might also be allowable at PGH but my guess is that PGH wouldn’t do it as would be more likely to benefit the minorities, not the bidder; PGH is trading at 84.5c so Bennamon can’t pick up any such shares. Also PGH’s banks might not be happy to permit that use of PGH’s cash.

(iv) SGH will pay a 30c div after the bid closes. This is the really interesting idea- even though it only increases the effective value to BLD holders by 3.3c + 1.1c franking (less than 1% of BLD share price). This is a promise by the listed parent co of the bidder to pay a div (after the offer closes) on the scrip in SGH thatthe accepting holders will receive. Under the bid, accepting Boral holders will get a mixture of cash and shares of SGH. SGH is allowed to declare a div on its shares which will be paid to all SGH shareholders, not merely those coming from Boral. The important difference from the PGH bid is that Bennamon is only paying cash for PGH shares- it is not offering its (unlisted) scrip as a part of the consideration. Hence Bennamon can’t promise to pay a future dividend from Bennamon to the PGH holders. PGH holders will just get 84c cash- there is no scrip alternative on which to declare/add a dividend.

Of the above changes to the Boral bid, the only element that might be relevant to PGH is (ii). I.e. could PGH pay a dividend before the bid closes? It may be allowed to by law but there would be little point. (Also as Bennamon dominates the register it’s unlikely that the Board would approve it). PGH’s banks also might not like it. The only value in point (ii) at Boral is the (extra) franking credits it offers to holders, which would otherwise end up in the Seven Group. The cash component of the bid will not change- the 26 cash div is deducted from the $1.70.

I haven’t cheeked but I think there is a condition in the PGH bid that PGH is not allowed to pay dividends during the bid. That is normal. Even if Bennamon agreed, it would have to deduct the cash value of a div from the 84c offer price, as it would otherwise conflict with the takeover law. Thus the only benefit that could be created by PGH paying a div now would be to offer franking credits. But the PGH franking balance at 30 June was only $2m, thus the FCs were worth only 0.6c per share. It may have changed since, but on these values the max div that PGH could declared with full franking would be 1.3c cash, which would have to be deducted from the 84c offer price; the extra value to holders would be only 0.6c. Unless PGH’s current franking balance is a lot higher than this, it’s so small as to be pointless (even if PGH’s lenders agreed to the cash outflow).

Most importantly, I doubt that BLD would have unilaterally decided to pay the 26c FF div: it must have agreed this as part of a package of concessions made by both sides to make the bid more attractive. Unless Seven had agreed to make the concessions in points (i) and (iv), I don’t think BLD would have announced the 26c div. In PGH’s case the bidder cannot offer any concessions like (i) and ((iv). Indeed I don’t see how Bennamon can offer any concessions: it is an all-cash bid that it said is final. There is nothing that Bennamon can offer as a trade-off to encourage PGH to pay a div now, and the extra franking credits that such might be able to offer would be tiny anyway.

Thus I believe there’s no chancethat the bid for PGH can be improved by divs paid either before for or afterthe bid closes. The only realistic hope for minority holders is unchanged, which is for Bennamon NOT to reach 90% to implement CA, so RG has to come back with a much better offer for the 13% minorities 6 months after the bid closes

Not advice, just my opinion.