Corporate Actions

What is a Corporate Action?

A Corporate Action refers to any alteration to a Company's share capital or a distribution of benefits. A Corporate Action might come about as a result of a takeover or merger, capital re-organisation, dividend or rights issue.

What are the different types of Corporate Action?

There are three main types:

• Cash Divisions
• Stock Divisions
• Combination Divisions

Each type can be split into Optional or Mandatory:

• Optional - the shareholder will decide whether to participate in the Corporate Action.
• Mandatory - the shareholder will have no decision to make as the Corporate Action is compulsory, e.g. change of a stocks description.

Cash Divisions

Dividends - the shareholder will usually participate in the companies' profits through the receipt of twice yearly dividends, companies are not obliged by law to pay the dividend as they can re-invest any profits into growing the company.

Ordinary share dividend payments are typically variable and may differ in value annually. Preference share dividends are fixed at the time the shares are issued by the company and any investor purchasing those shares is entitled to that dividend rate. Preference shares can be cumulative - if in any financial year the company cannot afford to pay the dividend, the payment can be delayed until sufficient profits are made - the current dividend and any arrears will then be paid. If a dividend is non-cumulative then the company will only pay the dividend in the year it is due.

Interest Payments - interest is paid on loan stock and some preference shares either annually or bi-annually, this is similar to a dividend but is termed an Interest Payment. As with dividend payments, 10% tax is removed prior to payment to shareholders.

Capital Repayment - a company can choose to reduce the number of shares in issue by re-purchasing stocks from its shareholders with the subsequent effect of raising its share value

Stock Distributions

Capitalisation - the issue of new fully paid shares in a company to existing shareholders, allocated pro rata to existing holdings. The issue's main objective is to dilute the price of the stock in the market place by spreading it over a larger number of holders. This is thought to be important in UK markets as shares with higher prices may discourage activity and thus reduce the liquidity in a stock. Also known as a scrip issue, a bonus issue, a free issue or a gratis issue.

Rights Issue - occurs when a company needs to raise new capital. Existing shareholders are entitled to buy additional shares at a fixed price, normally proportional to their existing holdings and often at a discounted price to that of the market so encouraging them to take up the rights. At least 21 days must be allowed between notification of a rights issue and the deadline for taking up the rights. With a rights issue the shareholder has three options: - take up the rights at the designated price - sell the rights on the open market - make no decision and receive the lapsed proceeds. Lapsed proceeds are the funds that may be paid to the shareholder if they make no decision on the rights. The offering company will sell the nil paid rights on behalf of the shareholder and take commission for this service. Lapsed proceeds are not always paid and this is dependent on the current share and nil paid rights price.

In some cases the shareholder may have insufficient funds to purchase all the rights but may want to purchase as many as possible through selling part of their nil paid rights in order to accept the remainder.

If a rights issue is offered on an overseas stock that you hold then the nil paid rights will be credited to your account, and you will be able to take them up if you wish. With overseas stocks there are no lapsed proceeds although you may sell the rights on the market on which they are listed.

Open offer - means of benefit distribution in which existing shareholders are offered an entitlement to purchase shares in proportion to their shareholdings. Open offers (also referred to as entitlement) differ from rights issues in that the nil paid stock cannot be traded, it can only be used to settle market claims. In an open offer the shareholder cannot sell on the right to subscribe for open offer shares. Excesses to the shareholder's allocated entitlement can often be applied for but if too many shares are applied for any excess may be subject to scaling back.

Conversion or Subscriptions - applicable to convertible debt securities and convertible preference shares, the shareholder has the opportunity to convert holdings to Ordinary Shares (or some other security) at a ratio set by the company. Warrants are taken up in this manner - the holder of the warrant can exercise their right and the company concerned must issue them with the appropriate number of shares for which the warrant applies.

Consolidation, Tender offer or Subdivision - a company proportionally increases the nominal value of each share whilst decreasing the number of shares on the issue. This differs to capital repayment as no funds are received by the shareholder for the reduction in their holding.

Combination Issues

Takeovers - the bidding company seeks to obtain a controlling interest (over 50% of the shares) in the target company. If the company is publicly traded then the acquiring company will make an offer for the outstanding shares. The bidding company will make an offer to the shareholders of either cash, shares or a combination of the two. The offer is usually conditional on the acquiring company attaining a specified level of acceptance.

During a takeover the shares can still be traded in the open market and if the offer succeeds they will be de-listed.

Takeovers can take longer periods of time compared to other Corporate Actions depending on whether the offer is revised, whether other companies enter into the bidding, and also the time it takes to receive the funds from the registrar.

Scrip Dividends - means of benefit distribution where a company distributes dividends as shares or as a combination of shares and cash to existing shareholders in proportion to the amount of shares already held.

What other types of Corporate Actions can occur?

These FAQs aim only to describe the most common corporate actions. If you need information on other types of corporate action, please contact us either by secure message or by telephone and we'll explain the details to you.

How do I know if I am entitled to the benefit resulting from a Corporate Action?

When a company announces a Corporate Action only those holding that stock at the commencement of trading on a specific date are entitled to that benefit. This date is termed the Ex-Date as all purchases of the stock after this date will not receive the benefit. For dividends this date is usually a Wednesday and for other Corporate Actions this date can be any working day. The Ex-Date applies to anyone who holds stock with a broker within CREST.

How will I know when a Corporate Action has occurred on my Lloyds TSB Share Dealing account?

When a Corporate Action occurs on a stock you are holding with us, you will be informed as follows:

Your Account Summary page will display any Corporate Actions pending on your account, selecting this option enables you to view details of each action and, where applicable, respond with your choice.

Notification will be sent to your secure inbox or by letter (depending on your account configuration), details will be emailed in PDF format so you will need to have Adobe Acrobat writer installed on your PC (downloadable from www.adobe.com).

What should I do once I receive a Corporate Actions notification?

Information about Corporate Actions is sent by secure message to your message inbox (log-in then click on the 'message box').

Each message will advise you of the date by which you must advise us of your decision. Because we need to aggregate the requirements of all customers holding that stock, and then advise the company of the outcome by the due date, your response will typically be required earlier than any date you may see in the press or from the company direct and you should allow for this.

Where a Corporate Action takes place for which you have no choice; for example an unconditional offer, a scheme of arrangement or the redemption of a dated preference share, we will complete the action and adjust your account accordingly. Whilst we will always try to advise you about this before the event, on some occasions, details may be sent after the action has been completed.

In many cases you will be able to make your Corporate Action instruction online by clicking on 'Administration' and then 'Corporate Actions': where this is not possible, you can reply to us by secure message or call Customer Services on 08457 888 001.

What happens if I don't respond?

In some cases a decision is compulsory and if you do not reply to the message by the required date we will make the decision on your behalf.

Can I have DRIP dividends with Lloyds TSB Share Dealing?

DRIP dividends refers to Dividend Re-Investment Plan and currently we do not offer this service. All dividends are paid in cash to your Lloyds TSB Share Dealing account or as shares if you have elected to receive scrip dividends (where available), unless you have chosen to have income paid to your bank account.

How do I vote at an EGM and/or AGM?

If you hold your shares within a Lloyds TSB Share Dealing ISA or Nominee account it is possible to request a Letter of Representation. This will allow you to attend the meeting and vote according to your current holding. You can contact us by calling 0845 60 60 560, by post or by sending a secure message - please ensure this is done a minimum of one week before the meeting is scheduled to be held.

Is there a charge levied by Lloyds TSB Share Dealing for Corporate Action services?

No, we currently make no charge for this service.