Harvey Norman (HVN) surprised the market with news of a special 14 cents a share dividend yesterday, taking investors completely unawares as the news was buried in a statement announcing a modest fund raising. The issue will raise a total of $140 million.
The special payment is in addition to the 8 cents a share final dividend declared with the annual result in August.
Harvey Norman revealed the heavily discounted rights issue, well ahead of the annual meeting in Sydney yesterday afternoon.
The issue was described as being part of the company’s “capital management” program.
Harvey Norman said it was looking to raise around $121 million in the issue, which would be made at a price of $2.50 for each share.
Shareholders will be able to subscribe for one fully paid ordinary share for every 22 shares held.
The special fully franked 14c a share dividend to shareholders will be paid to shareholders on December 30, a later announcement to the ASX said.
The issue a fully underwritten renounceable share offer for capital management reasons.
HVN shares fell by just on 4% in the aftermath of the announcement, but recovered quickly to end steady on $3.71 at the close yesterday.
HVN YTD – Old fashioned capital management at Harvey Norman
The announcement was made to the market ahead of the AGM later in the day.
Directors, including chairman Gerry Harvey and CEO Katie Page, have indicated that they will take up their full Entitlement under the Entitlement Offer.
Chairman Gerry Harvey said the $140 million in the special dividend to be returned to shareholders through the special dividend was a way of distributing franking credits that have accumulated over many years.
The underwriter is Paterson’s Securities, which has reached a sub underwriting agreement with Gerry Harvey, meaning he can pick extra shares to add to his controlling stake from those rights to the issue renounced by shareholders.
This is a very old fashioned way of raising cash and many brokers won’t understand concepts such as the theoretical value of the rights to the issue.
Rights trading in the issue starts this Friday. Shareholders should have their new scrip by December 23, if they take up what looks like a bargain-priced raising. The shares won’t qualify for the special dividend.
The special dividend and issue announcement seems to be have been an attempt to divert attention from strong opposition from shareholders at the AGM to executive pay which resulted in the remuneration report being overwhelming rejected.
Opposition to the levels of pay to executives has been rising in recent weeks with a group of shareholders agitating to oppose it. Media stories this week suggested the vote would go against the company and result in a so-called ‘first strike’.
Shareholders ignored the good news of the dividend and issue and overwhelmingly voted against the company’s pay structure at its annual general meeting yesterday.
The vote was 282.4 million against and 90.09 million in favour of the report. Mr Harvey could not vote his 30% stake in the company.
But Mr Harvey said the vote would have no consequences, despite the prospect of a board spill next year if at least a quarter of shareholders again reject executive salaries. "Nothing will change," he told AAP.
Mr Harvey said the board would just re-form again if there was a second strike.
