Not sure what to do with Standard Life windfall shares? Past demutualisations suggest to hold for the long run.
Not sure what to do with an impending Standard Life share windfall? If history is any guide, keeping hold for the longer run may be the way to go.
The table below lists seven of the most popular demutualisations:
| Company | Conversion
date | Minimum number
of free shares | Flotation price
(p) | Windfall value
(£) |
|---|
| Abbey National | 12/07/89 | 100 | 130 | 130.00 |
| Alliance & Leicester | 21/04/97 | 250 | 542.5 | 1,356.25 |
| Halifax | 03/06/97 | 200 | 732.5 | 1,465.00 |
| Woolwich | 07/07/97 | 450 | 296.5 | 1,334.25 |
| Northern Rock | 01/10/97 | 500 | 452 | 2,260.00 |
| Bradford & Bingley | 04/12/00 | 250 | 248 | 620.00 |
| Friends Provident | 09/07/01 | 200 | 225 | 450.00 |
| | | | |
| Total | | | | 7,615.50 |
The archetypal carpetbagger would have quickly profited by selling the free shares immediately. However, a longer-term investment horizon would have since improved the carpetbagger's portfolio by 127%! Here's how those seven holdings stood at yesterday's close:
| Company | Number
of shares | Share price
19/06/06
(p) | Accumulated
dividends
(£) | Total value
(£) |
|---|
| Banco Santander | 100 | * 736.27 | * 452.96 | 1,189.23 |
| Alliance & Leicester | 250 | 1,129 | 826.25 | 3,648.75 |
| HBOS | 185 | 948.5 | 584.02 | 2,338.75 |
| Barclays | 208 | 605 | ** 1,239.40 | 2,497.80 |
| Northern Rock | 500 | 999 | 826.00 | 5,821.00 |
| Bradford & Bingley | 250 | 461.25 | 208.25 | 1,361.38 |
| Friends Provident | 200 | 174.75 | 66.80 | 416.30 |
| | | | |
| Total | | | | 17,273.20 |
(*Traded in euros and includes six euro-dominated dividends. Converted at £1/€1.466 **Includes 164p per share cash portion of takeover offer)
Over time, passive windfall shareholders have encountered their fair share of corporate activity. Most notably, Abbey National succumbed to a £9bn bid from Spanish counterpart Banco Santander during 2004. In addition, Barclays
(LSE: BARC)
snapped up Woolwich for £5bn during 2000, while Halifax merged with Bank of Scotland to form HBOS
(LSE: HBOS)
in 1999. Bid rumours have swirled regularly around some of the others.
The following table shows the average annual return for each windfall share held since flotation. The calculations assume accumulated dividends were not reinvested.
| Share | Average annual
return (%) |
|---|
| Abbey National | 14 |
| Alliance & Leicester | 12 |
| Halifax | 6 |
| Woolwich | 9 |
| Northern Rock | 11 |
| Bradford & Bingley | 13 |
| Friends Provident | (2) |
Floating just as the bear market got into full swing during mid-2001, only Friends Provident
(LSE: FP.)
has disappointed its investors. Halifax has not set pulses racing, its shares having matched the FTSE 100 over the past nine years. However, Alliance & Leicester
(LSE: AL.)
, Bradford & Bingley
(LSE: BB.)
, Woolwich and Northern Rock
(LSE: NRK)
have all done particularly well. Importantly, dividends have supported the all-round progress; payouts have increased every year since flotation at six of the seven financial institutions.
Of the shares highlighted, the one that really stands out is Abbey National. During the past seventeen years, those hanging onto Abbey shares (and subsequently keeping their Banco Santander shares) would have seen their investment (including dividends) grow at approximately 14% per annum. Not bad going, especially when you consider Abbey is the only bank on the list to have cut its dividend! A disastrous foray into wholesale banking was the cause, which resulted in a near £1bn loss and a share price collapse in 2002.
But overall, passive demutualisation investors seem to have been handed a band of reliable performers. With the sector's history suggesting a decent amount of bid interest plus some reliable dividends too, there would seem little incentive to cash in a Standard Life windfall straight away.
More:Standard Life Windfalls Cut | Standard Life: The Float Is On | Discussion board
