Following shareholder approval for the return of capital and share consolidation at the 2013 Annual General Meeting held on 7 November 2013, Wesfarmers made a return of capital of 50 cents per ordinary share and partially protected share on 26 November 2013. Wesfarmers undertook an accompanying share consolidation under which each ordinary share was converted into 0.9876 ordinary shares and each partially protected share was converted into 0.9876 partially protected shares. All information below is quoted in Australian dollars. Please find below some information and frequently asked questions in relation to these initiatives.
- Your shareholding
- Shareholdings in partially protected shares
- Tax implications
- Key dates
- Additional information
Return of capital
What was the return of capital?
Wesfarmers made a cash payment to shareholders of 50 cents per ordinary share and partially protected share (representing approximately $579 million in total) as a return of capital.
Shareholders approved the return of capital at the 2013 Annual General Meeting held on 7 November 2013.
Why was the return of capital undertaken?
The return of capital was made to return surplus capital to shareholders and to ensure that Wesfarmers maintains an efficient capital structure. Wesfarmers actively manages its balance sheet to provide satisfactory returns to shareholders whilst ensuring it also has the flexibility to pursue growth opportunities and ensure its credit metrics are maintained. Continued strong earnings growth, cash flows and credit metrics enabled the return of capital to be undertaken without reducing balance sheet flexibility.
Why return capital this way?
A return of capital is seen as the most equitable way of returning surplus capital in cash to all shareholders. Wesfarmers already has a relatively high dividend payout ratio and therefore low surplus franking credits, reducing the ability of the company to pursue a special dividend or off-market buyback. In addition, not all shareholders choose to participate in an on-market buyback.
How did the return of capital work and what was the effect on the company?
Wesfarmers ordinary shareholders and partially protected shareholders received a 50 cent per share return of capital. Collectively, shareholders received a total return of capital of approximately $579 million. The return of capital reduced Wesfarmers' capital by approximately $579 million and the effect of the return of capital was to transfer this capital directly to shareholders.
In determining whether to implement a return of capital, the directors reviewed Wesfarmers' assets, liabilities and expected cash flows and satisfied themselves as to the solvency of Wesfarmers following the return of capital. The return of capital did not adversely impact Wesfarmers’ credit ratings or materially impact its ability to fund new investments consistent with its growth strategy.
How was the return of capital funded?
The return of capital was funded by a mix of Wesfarmers' available cash balances and drawing on existing debt facilities, with the mix determined having regard to the most cost effective source of funding available at the date of payment.
What was the share consolidation?
Wesfarmers undertook a consolidation of its share capital through the conversion of every one ordinary share into 0.9876 ordinary shares and every one partially protected share into 0.9876 partially protected shares.
Shareholders approved the share consolidation at the 2013 Annual General Meeting held on 7 November 2013.
Why was the share consolidation done?
The share consolidation was undertaken at a ratio which reflected the size of the return of capital to shareholders. The combination of a return of capital and share consolidation enabled Wesfarmers to provide an earnings per share (EPS) outcome similar to that which would result from a share buy-back, whilst also ensuring that all eligible shareholders received an equal cash distribution per share. The share consolidation was implemented in a manner which ensured that each shareholder’s proportionate interest in Wesfarmers remained unchanged post the return of capital, subject to rounding up of fractional entitlements.
How was the share consolidation rate determined?
The share consolidation ratio was calculated by referencing the amount of the return of capital as a proportion of the Wesfarmers 20 day volume weighted average price ended 13 August ($40.27):
0.9876 = (40.27 – 0.50) / 40.27.
What was the effect of the consolidation on the company?
The number of ordinary shares on issue was reduced from approximately 1,007 million to approximately 994 million and the number of partially protected shares on issue was reduced from approximately 151 million to approximately 149 million.
The above numbers are subject only to rounding of fractions.
Was I eligible for the return of capital?
To have be eligible to receive the return of capital, you needed to be a registered shareholder on the record date for determining entitlements, which was 4.00pm (Perth time) on 15 November 2013. The last date to purchase shares which were eligible to receive the return of capital was 8 November 2013. Therefore shares purchased on or after 11 November 2013 (which was the next trading day on the ASX after 8 November 2013) were not eligible for the return of capital.
Did I have the choice to participate in the return of capital or share consolidation?
No, eligible shareholders were not be provided with the opportunity to 'opt out' of the return of capital and share consolidation
How much did I receive and how was the payment made?
You received 50 cents for each ordinary share and 50 cents for each partially protected share you held as registered holder at 4pm (WST) on 15 November 2013. So, for example, if you held 5,000 shares, you received 5,000 x 50 cents or $2,500.
As with dividend payments, payments of the return of capital to Australian, New Zealand and United Kingdom registered resident shareholders were made by way of direct credit to a financial institution in Australia, New Zealand or the United Kingdom (including a bank, building society or credit union account).
What was the effect of the consolidation on my shareholding?
As the consolidation applied equally to all of the company's shareholders, individual shareholdings were reduced in the same ratio as the total number of Wesfarmers' shares (subject only to the rounding of fractions). It follows that the consolidation had no effect on the percentage interest of each individual shareholder in Wesfarmers, except for rounding.
What happened if my holding resulted in entitlement to a fraction of a share?
Where the consolidation of a shareholder's holding resulted in an entitlement to a fraction of a share, the fraction was rounded up to the nearest whole number of shares (applied to both ordinary and partially protected shares).
Do I receive less total dividends as a result of owning fewer shares?
As a result of the share consolidation, there are fewer total Wesfarmers shares on issue. This means that the total amount that Wesfarmers pays out as dividends is paid on the reduced number of shares. Therefore, although each shareholder owns fewer shares, the dividends per share are higher than they would have been had the consolidation not taken place.
Are my shares worth less after the capital return?
The return of capital with accompanying proportionate share consolidation should have, all other things being equal and subject to the rounding up of fractions of shares, maintained the pre return of capital value of your shares. Importantly, subject to the rounding up of fractions of shares, each shareholder's proportionate interest in Wesfarmers remained unchanged post the return of capital.
Shareholdings in partially protected shares
How did the return of capital & share consolidation impact my partially protected shareholding?
The return of capital and share consolidation applied equally to all Wesfarmers ordinary shares and partially protected shares. Partially protected shareholders received a return of capital of 50 cents per partially protected share and each partially protected share was consolidated in the same ratio as each ordinary share. Additionally, minor adjustments to the terms of the partially protected shares were made to compensate partially protected shareholders for the loss of the embedded option attaching to 0.0124 partially protected shares as a result of the consolidation.
What were the adjustments to the partially protected share terms?
The partially protected share cap price was not adjusted as the value of an ordinary share should have been maintained pre and post return of capital by the proportionate share consolidation. However, due to the consolidation of the partially protected shares and the embedded option within each partially protected share, holders would have had a small reduction in the embedded option value attaching to their partially protected shares. In order to compensate partially protected shareholders for this small reduction in value, the directors exercised their discretion, consistent with the terms of the partially protected shares, to adjust the floor price and the maximum conversion ratio attaching to the partially protected shares.
|Floor Price||Cap Price||Maximum Conversion Ratio|
|Pre return of capital||$34.49||$43.11||1.25|
|Post return of capital||$34.32||$43.11||1.256|
External advice provided to Wesfarmers confirmed that the adjustments to the terms of the partially protected shares were an appropriate method of maintaining price relativity between partially protected shares and ordinary shares.
What were the tax implications of the return of capital and share consolidation?
Please refer to the Wesfarmers Limited Shareholder Tax Information Guide.
What were the key dates for the return of capital and share consolidation?
7 November 2013
- Annual General Meeting, at which shareholders approved the return of capital and share consolidation.
11 November 2013
- Wesfarmers ordinary and partially protected shares commenced trading on an 'ex return of capital' basis.
- Trading in post-consolidated Wesfarmers ordinary and partially protected shares commenced on a deferred settlement basis.
4:00pm (Perth time) 15 November 2013
- Record date for determining entitlement to participate in the return of capital (entitlements were determined by reference to Wesfarmers pre-consolidation capital).
- Last day to register transfers of ordinary and partially protected shares on a pre-consolidated basis.
18 November 2013
- Post-consolidation holdings entered into ordinary and partially protected holders' security holdings.
26 November 2013
- Payment date for return of capital. Deferred settlement trading ended.
- Holding notices issued confirming post-consolidation holdings of ordinary shareholders and partially protected shareholders.
How can I find out more about the return of capital and share consolidation?
You can refer to the following reference materials: