BHP buyback - too good to pass up? - Aussie Stock Forums

1. ## BHP buyback - too good to pass up?

Just thought I would bring this up in case there are any SMSF managers on the forums and to get confirmation.

Reading through to the Off-Market Buy Back booklet from BHP that arrived today and pricing the buyback specifically for SMSF(Taxed at 15%) I have come to the conclusion that this BuyBack is just too good to pass up.

Considering that the buyback is offered as a capital component(\$2.50) and a fully franked dividend component calulated from the Tender Price

E.g.
Tender Discount 12%
Assumed Market Price \$27.00
Fixed capital component \$2.50
Deemed dividend component \$21.26
Assumed Tax Value \$27.69
Cost base (unindexed) \$25.00 --------------Average Buy Price
Assumed brokerage fee per Share from on-market sale \$0.27

Total after tax proceeds per Share from the Buy-Back \$30.17
Total after tax proceeds per Share from on-market sale \$26.47

BOTTOM LINE
Amount by which after tax proceeds from selling a Share into the Buy-Back exceeds (or is less than) the after tax proceeds from on-market sale
= \$3.70

This calculation from the BHP tax calculator
http://wm-au.ibb.ubs.com/pca/taxcalc...tionsOfUse.htm

Thus for SMSF there is an opportunity to gain \$3.70 per share via the tax implications of the dividend component having purchased at average of \$25.

Now if alter you alter the to purchase price to \$27 then you still make \$3.62 per share by selling at \$37 per share.

Remember this is throufgh tax implications of the dividend component and only works for low tax rates (SMSF at 15%).

Wonderful.

Confirmation anyone.

2. ## Re: BHP buyback - too good to pass up?

The details are in the fineprint.

The calculator assumes that you can make full use of the capital loss from the capital component.

I think that if your SMSF CGT component is significant this is still a very viable strategy , and you can offset any CGT by selling some BHP in the buyback.

The potential is there to wipeout any CGT on the SMSF portfolio.

Thoughts.

3. ## Re: BHP buyback - too good to pass up?

If one is trading via etrade, how is the tender form submitted? I can't seem to find anything on the etrade website regarding this.

4. ## Re: BHP buyback - too good to pass up?

Originally Posted by svensk

If one is trading via etrade, how is the tender form submitted? I can't seem to find anything on the etrade website regarding this.
You will need to fax it back to them when you receive it. That is what I did. Then your shares will not be able to be traded until they are bought back.

Does anyone know over which period the buy back price will be calculated? I understand it is over 5 days but I don't know which days.

Cheers

5. ## Re: BHP buyback - too good to pass up?

afaik, the 5 days preceding the 23rd.

Don't have access to fax, I guess i'll mail it to them. Just the form you say? Hmm

6. ## Re: BHP buyback - too good to pass up?

Originally Posted by Fab
Does anyone know over which period the buy back price will be calculated? I understand it is over 5 days but I don't know which days.

Cheers
Yeh, its the five days up to and including the closing date which is the 23rd.

Originally Posted by ak98
The calculator assumes that you can make full use of the capital loss from the capital component.
What if one doesn't have any CGT to offset and is still in the 15% marginal rate, does it still add up or not?

7. ## Re: BHP buyback - too good to pass up?

It is quiet here for a while.

I guess it is the time to ask our dear video charting friend(s) to do some fortune-telling. Where are they? And where is BHP heading to?

We don't need predict tomorrow, on the day after tomorrow.

8. ## Re: BHP buyback - too good to pass up?

Originally Posted by mmmmining
It is quiet here for a while.

I guess it is the time to ask our dear video charting friend(s) to do some fortune-telling. Where are they? And where is BHP heading to?

We don't need predict tomorrow, on the day after tomorrow.

Heaps of ffranking

Capital Loss

Who knows whether it is the correct thing to do.

Lets see how bhp goes over the next few months.

Garpal

9. ## Re: BHP buyback - too good to pass up?

I have too.
With the recent price rise we should get a good price also.

K22

10. ## Re: BHP buyback - too good to pass up?

I have losses to offset. Only 30% bracket. Worked out i was only \$800 better off based on the discount price but im sure BHP will ascend so i dont think is worth it unless ur above the 30% tax bracket.,

11. ## Re: BHP buyback - too good to pass up?

Anyone heard if there is another off market buy back as this one only was for 2.8 billion of the original 10 billion

12. ## Re: BHP buyback - too good to pass up?

This is a really newb question, but i'll ask anyway

According to the original post, it would indicate that the poster would receive \$30.17 per share, if he/she participated in the buyback. So if he owned 1000 shares of BHP, and all shares were sold in the buyback, he should receive the sum of \$30170?

Or rather, does he only receive the sum of \$23760, calculated from the assumed buyback price?

13. ## Re: BHP buyback - too good to pass up?

Originally Posted by svensk
This is a really newb question, but i'll ask anyway

According to the original post, it would indicate that the poster would receive \$30.17 per share, if he/she participated in the buyback. So if he owned 1000 shares of BHP, and all shares were sold in the buyback, he should receive the sum of \$30170?

Or rather, does he only receive the sum of \$23760, calculated from the assumed buyback price?
Dear svensk,

Mostly it depends on your marginal tax rate as the majority of the payment is as a fully franked dividend and the rest is as a capital return which is so low that a capital loss is usually gained.

The result is that little or no tax is paid on the transaction.

As opposed to selling on the open market and being up for Capital Gains Tax.
.
Check on the bhp website, they had a calculator for different tax scenarios.

ASF is a good learning forum on this and other aspects of buy backs.

Do a search on ASF on bhp and buybacks and you will be rewarded.

Also typing those words into Google.com.au may turn up pages of assistance.

Super funds paying 15% tax do better than individuals on higher tax rates.

Garpal

14. ## Re: BHP buyback - too good to pass up?

Garpal,

So basically if you had no cgt to offset, and you purchased the shares originally for more than the assumed buyback price, and you were in a lower tax bracket (say 16.5%), it would in fact not be beneficial at all to participate in the buyback?

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