BHP Billiton has announced its intention to buy back AU$5bn in shares as part of its expanded US$10bn buy-back, which is due to be completed by the end of 2011.
It has put together a deal whereby it will buy-back shares at a 10% discount to the volume weighted average price over the 5 days prior to the closing date of the offer.
In exchange for purchasing the shares at a discounted price, the payment to the shareholder will include a capital return of 28c a share, with the remainder being made up of a fully franked (tax effective) dividend.
5 Financial Accounting and Tax has reviewed a number of scenarios to identify who can benefit from this offer. This includes evaluating the outcomes for those on tax rates ranging from zero (for example, those drawing pensions from their Super fund) to those on the top marginal rate of 46.5%.
What we’ve found is that there may be material benefits for those who:
- hold BHP shares within their Super fund
- are on low incomes
- hold BHP shares through a Family Trust with the ability to pass the return to those on a tax rate of 15% or lower
- are on a tax rate of 30% and who have held their BHP Billiton shares for less than 12 months, with no entitlement to the 50% CGT discount.
In the coming weeks, we will be in touch with you if we believe you can benefit from the offer.
It’s also worth mentioning that for those who don’t benefit by actively participating in the buy-back, it is expected that you will benefit indirectly. This is because there will be a smaller pool of shares in the market after the buy-back, sharing the same size capital pool. The independent research advice we have received indicates that BHP Billiton’s share price is likely to move higher following the buy-back, all else being equal.
For advice that’s tailored to your specific situation and goals, speak with one of our experienced financial advisers. An initial consultation is offered at no cost or obligation. Contact us today to book a time that’s convenient to you.