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Can They Really Screw Me Like This?


randomep
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Last year I bought Adrenna which is in South Africa (ticker:ANA). This is a tiny company.  They have about 55M shares outstanding and a $160M book value.  (all $ here refer to Rand).  I bought my shares at $1, thinking oh great I got $3 a share for $1.

 

Then I just learned that the company will force me to give up my shares for $1.30, way below the book value. their reasoning is that hey the stock trades much lower so that's all we will give you.  Holy smokes, but ok I make 30% in a year, or so I thought.

 

Then I learned that the company will give me the $1.30 as dividend distrubution, with a 20% Za withholding.  So now I get $1.02.  That's what really scares me, so I get the $1.30 as dividends and I will have to pay normal income tax rates in the US, even if I get the 20% as credit towards my US taxes.  So I could wind up with something like $0.75 left over.  And then I will take a 100% write off of my investment, which is going to give me a tax credit at capital gains rates, which could be 25%.  So then I get $0.75 plus $0.25 ($1 * 0.25) credit?  So I make nothing through this??? Is this how it will be?

 

thanks

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I'm not from the US, so I don't know about the tax implications. But I saw that this "going private" transaction was done by a Scheme of Arrangement. In case someone else wants to take a look, the document can be found on this page.

 

Why is the scheme consideration being treated as a dividend distribution? That seems strange. Are you sure that is correct? If that is the case, it could be that it has something to do with the US possibly being a "restricted jurisdiction" and that for legal reasons, formally the offer can't be made to you. Perhaps a dividend distribution of the amount of the consideration is a way for the company to get around that problem.

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Last year I bought Adrenna which is in South Africa (ticker:ANA). This is a tiny company.  They have about 55M shares outstanding and a $160M book value.  (all $ here refer to Rand).  I bought my shares at $1, thinking oh great I got $3 a share for $1.

 

Then I just learned that the company will force me to give up my shares for $1.30, way below the book value. their reasoning is that hey the stock trades much lower so that's all we will give you.  Holy smokes, but ok I make 30% in a year, or so I thought.

 

Then I learned that the company will give me the $1.30 as dividend distrubution, with a 20% Za withholding.  So now I get $1.02.  That's what really scares me, so I get the $1.30 as dividends and I will have to pay normal income tax rates in the US, even if I get the 20% as credit towards my US taxes.  So I could wind up with something like $0.75 left over.  And then I will take a 100% write off of my investment, which is going to give me a tax credit at capital gains rates, which could be 25%.  So then I get $0.75 plus $0.25 ($1 * 0.25) credit?  So I make nothing through this??? Is this how it will be?

 

thanks

 

You need to re-read your source material.

You are receiving a mandatory buy-out offer at a 30% premium to the market (the $1 you paid), and it is not a dividend.

 

SD

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Ok seems like I should have included the supporting documentation. I initially assume it is a buyout offer in the original offer, of course. But a subsequent SENS announcement told me otherwise: see below:

 

 

 

Release Date: 15/11/2019 11:20:00      Code(s): ANA      PDF(s):  Sens

Update Announcement - Withholding of Dividend Withholding Tax from the Scheme Consideration

 

ADRENNA PROPERTY GROUP LIMITED

Incorporated in the Republic of South Africa

(Registration Number 1998/012245/06)

Share Code: ANA ISIN: ZAE000163580

(?Adrenna? or ?the Company?)

 

 

UPDATE ANNOUNCEMENT RELATING TO THE WITHHOLDING OF DIVIDEND WITHHOLDING TAX FROM THE

SCHEME CONSIDERATION

 

 

Shareholders are referred to the announcement released on SENS on 12 November 2019 relating to

the withholding of dividend withholding tax from the Scheme Consideration and are advised that the

Scheme Consideration of R1.30 per share will comprise 1 cent, being a refund of contributed tax

capital, and 129 cents, which is deemed to be a dividend distribution payment in terms of the Income

Tax Act, 58 of 1962 (?Income Tax Act?).

 

The dividend distribution payment element of the Scheme Consideration will be subject to a dividend

withholding tax ("DWT") at a rate of 20%, unless Shareholders are exempt from DWT in terms of section

64F of the Income Tax Act, which will result in a net dividend distribution per Share repurchased of

R1.03200.

 

Johannesburg

15 November 2019

 

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  • 2 weeks later...
Guest brisbane

Last year I bought Adrenna which is in South Africa (ticker:ANA). This is a tiny company.  They have about 55M shares outstanding and a $160M book value.  (all $ here refer to Rand).  I bought my shares at $1, thinking oh great I got $3 a share for $1.

 

Then I just learned that the company will force me to give up my shares for $1.30, way below the book value. their reasoning is that hey the stock trades much lower so that's all we will give you.  Holy smokes, but ok I make 30% in a year, or so I thought.

 

Then I learned that the company will give me the $1.30 as dividend distrubution, with a 20% Za withholding.  So now I get $1.02.  That's what really scares me, so I get the $1.30 as dividends and I will have to pay normal income tax rates in the US, even if I get the 20% as credit towards my US taxes.  So I could wind up with something like $0.75 left over.  And then I will take a 100% write off of my investment, which is going to give me a tax credit at capital gains rates, which could be 25%.  So then I get $0.75 plus $0.25 ($1 * 0.25) credit?  So I make nothing through this??? Is this how it will be?

 

thanks

 

Book value, LOL. I seriously hope you don't think investing is as simple as looking at balance sheet equity value and then buying the stock if it trades below that value.

 

The questions you need to ask: Did the shareholders approve this transaction? Did the board approve it? Was there a fairness? Did it follow local laws / governance procedures?

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Instead of keep whining, I think the best thing to do at the moment is to bite the bullet and move on, and spend the time to improve your strategy, and learn. You didn't lose money. That's good enough.

If your strategy relies on buying obscure names in developing countries, and you repeat it over and over, you are just playing Russian Rootlet, and will be killed sooner or later. You need to have a strategy that keeps working for you and you can keep replicating the good results over and over.

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