Those Coles shareholders wondering about why there's a discount with the Wesfarmers' offer price should remember one thing.
WES goes ex-its final dividend (not decided but it could be as much as $1.50c a share) on or about the August 16 when the full year's results and final payout will be made public. WES paid a final of $1.50 a share for 2006.
That means by the time the merger deal goes through in October WES will be down $1.50 on the current price and on the imputed value of $45.73 of last Friday which was used to sell the $17.25 final price ($17 in cash and shares plus the final Coles dividend of 25c a share).
That is starting to be factored into the WES share price.
Under the deal, to be carried out by scheme of arrangement, Wesfarmers is offering $4 cash and 0.2843 Wesfarmers shares for each Coles share.
WES shares closed at $42.51 yesterday, down 9c and Coles shares at $15.59, down 3c.
That gives a value of $16.08 at the close yesterday, and when the 25c a share final Coles' dividend is taken into account, it's $16.33.
Some commentators have suggested WES should cough up its final dividend. There is no basis for this comment as that belongs to existing WES holders because the company has a financial year ending on June 30.
At yesterday's close WES was worth $41.01 to a Coles shareholder ($42.51 minus $1.50) and the bid worth $15.86.
Remember there's also the chance that the deal could be terminated (if the WES price drops significantly).
Both Coles and Wesfarmers can terminate merger if the volume weighted average price of WES drops below $41.16 for 20 days. On that basis Coles is perfectly priced and is not actually a cheap way into WES.
Volume in both Coles and Wesfarmers slowed a little, as did the price fall, although WES shares rose, then fell during the day.
The thing working in the favour of the deal is that when 308 million WES shares are issued and the deal complete, WES's weighting in the ASX 200 will rise to around 2.5 per cent, from around 1.4 per cent now. That will require all fund managers to lift their stakes substantially to remain about right weight.
Some fund managers chased WES shares before the bid was done on the assumption that the equity component would rise from 25 to 45 per cent. In the end it was 75 per cent.
Many of the shares sold have been speculators quitting and taking quick profits. As we saw with the T3 float, once the deal is done and bedded down, then you will see the WES share price rise from managers chasing index weighting.
The other interesting situation was Sigma Pharmaceuticals.
The CEO, Elmo de Alwis, was visiting major analysts and institutions in Sydney and Melbourne yesterday trying to repair the damage from Tuesday's shock earnings downgrade which saw the company shares sold off heavily.
The company said on Monday its net income in the 12 months ending January 31 will be similar to the year earlier.
The company previously forecast profit growth between 10 per cent and 15 per cent. The first half profit for the six months to the end of July will also be lower.
SIP shares fell 2.5c yesterday, on more than 41.8 million shares traded, to end at $1.72. On Tuesday it fell from $2.12 Monday to $1.745. Turnover was53.7 million shares, more than five per cent of the capital. So around 10 per cent of SIP's shares have traded in the past two days.
Some analysts want to know why the respected company director (and Leighton's chairman) David Mortimer stepped down from July 1. He joined the board after the SIP takeover of Arrow.
Telstra has provided shareholders with the opportunity to participate in a dividend reinvestment plan, which will allow investors to reinvest dividend payments without the cost of brokerage. TLS was up 6c to $4.67, yesterday, a long way from the $4.96 seen six weeks ago.
Telstra said all Australian registered shareholders are eligible and the shares will come from the Future Fund, which will slowly reduce its holding in the Telco over time. This is allowed while the Fund has to hold its shares in escrow.
This will make the stock more appealing to small shareholders.