RPC rights offer ... any thoughts?

Sunday, Jan 10 2016 by

I have held RPC for 13 months now, and it has performed very well over that time, up 55%. It is one of those shares I have been thinking of selling in the not-too-distant, as its stock rank is not that compelling (except for the momentum that is...which makes me think I want to hold on for a while longer)

However, now those of us who own RPC are being offered what seems a generous offer on the face of it. RPC is offering a one for five rights issue, in order to acquire global GCS group. The price they are selling these rights for is 460, quite a discount from the current price of 763. So the choices are... I can either buy these shares, or sell my rights to these shares, or do nothing and see if they pay me something eventually for them once the deadline is over. Once or twice in the past, I've bought rights issues when offered and I've noticed the shares dropped.. I suppose this is inevitable, or is it?

So my question to fellow private investors is what are your thoughts about rights issues in general, and also specifically RPC? What would you do in my shoes? Thank you, I look forward to a discussion, in what is my first post here.

Filed Under: Rights Issues,


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RPC Group Plc is a plastic products design and engineering company. The Company offers a range of consumer products and technical components for the packaging and non-packaging markets. The Company's business is organized into two segments: Packaging and Non-packaging. The Packaging business serves the food, nonfood (including (general industrial, agrochemical and automotive), personal care (mass personal care, cosmetics and beauty), beverage and healthcare ((pharmaceuticals) markets. The Non-packaging businesses design and manufacture molds, molded products and technical components for other markets. The Company's divisions include RPC Superfos, RPC Bramlage, RPC Promens, RPC Bebo and RPC Ace. The Company uses a range of polymer conversion technologies, including injection molding, blow molding, thermoforming and rotational molding. The Company operates over 110 manufacturing sites in approximately 30 countries. more »

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30 Posts on this Thread show/hide all

gus 1065 10th Jan '16 1 of 30

Hi Joy - I don't really have a view on RPC (not one of my holdings) but happy to offer some commentary on the mechanics of a rights issue to get the ball rolling.

RPC is issuing new shares to raise equity to fund its proposed acuisition of GCS. Under the terms of the RI, you are being offered the chance to buy 1 new share @ 460p for each 5 shares you own currently valued @ 763p. (Not sure what the original RPC share price was on the date RI was announced, but ideally you should use this as your 763p figure in the above calculation as there will already be some market reaction to the merits of the RI embedded in the current share price).

As you say, these new shares are being offered at a discount of about 40% to the current market price. However, this doesn't mean the new shares are necessarily "cheap" since once they are issued it is likely that the price of all shares in issue will drop to the fully diluted ex-rights level. Assuming the market is "neutral", i.e. doesn't think the proposed acquisition will increase or decrease value, the theoretical ex-rights price (i.e. value per share after the rights issue has gone through should be about 713p ((1 x 460) + (5 x 763))/6), i.e. about 6.5% below the current share price. (Put another way, this is the same as the c.40% discount on the one new share spread over the 5 old plus one new share (40/6~=6.5%)). The deeply discounted price of the new shares is a pretty standard feature of most rights issues and this is why, in the past, you have probably seen the share price drop after previous rights issues have taken place.

Your right to buy the new shares at 460p (i.e. 253p below the ex rights price of 713p) has a value and as you say you will be able to sell these rights with reference to, but not usually exactly the same as, this 253p. This will vary between now and the end of the rights offering period according to general market conditions and general supply and demand for the RPC rights/shares. You have several options (exercise the rights and buy new shares; sell the rights now and keep the cash but have 1/6 less of your current equity in the company; let the rights lapse at which point the company broker will sell them on your behalf and give you the proceeds.)

One further option you overlook which you will probably be offered is to arrange to sell a proportion of your rights that will give you exactly the proceeds needed to buy some of your new share allocation with the remaining rights that you do not sell. For simplicity, if the 253p figure shown above was 230p, you would have to sell 2 rights for each 460p new share acquired - you would get 1/3 of a new share for every 5 shares you currently hold. In this way you would get some new shares but would not need to pay in any new cash. You would still experience some dilution (your proportion of the overall company equity will be slightly reduced) but by less than if you sold all the rights. The company would still get its cash as the rights that you sell would presumably be exercised by the rights buyer into new shares. At any point you also have the option to sell your underlying RPC holding (i.e. pre or post rights issue) and cash out the entire amount.

In theory, if the company simply held onto the cash proceeds from the RI the whole thing would be an exercise in "smoke and mirrors" since the new cash would be an asset (in the company's rather than your bank account) and you would have the same proportionate share in the same overall asset pool. However, there are significant transaction costs (I note the RI is fully underwritten) which take out some of this new cash and in this case the company is spending the cash on an acquisition.

In terms of what action you should take that very much depends on factors such as whether you have available/want to put more cash into the company and whether you think the acquisition will increase the overall value of your holding. Hopefully you will get some indications from other investors on this thread as to what their thinking is although as always it is very much your decision and if in doubt you should seek some independent financial advice.

Hope this helps to at least understand some of the mechanics.

Good luck.


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Mid Herts 11th Jan '16 2 of 30

Hi Joy

Gus has given a very good explanation of the process but as a fellow holder I can make some specific comments:
1) If you look in the portfolio section of your brokers accounts you should find a line detailing your rights and the price at which they can be bought and sold. When I looked a few minutes ago it was about 299p. The current price of your existing shares already reflects that these rights have been issued. You should have noticed a drop in the price of RPC shares on 5th Jan when the rights issue took place. The price of your existing shares at 759p reflects a pre rights price of about 820p.
2) The rights have to be taken up by 19th Jan but you will need to have made a decision sooner than this. Your broker should have given a deadline but I would guess it may be about 14th Jan.
3) So you have 4 choices -:
a) Take up your rights presuming you have the cash available and are happy to put more money into RPC
b) Sell your rights for about 299p per unit. Because of the procedures that have to be followed you should do this in the next 2/3 days. Your remaining shares will trade as normal and the price will fluctuate depending on supply and demand in the market. So far, given the turbulent conditions of the last few days they have held up quite well so this suggests quite good institutional support for management.
c) Sell part of your rights to fund subscription for the remainder. Roughly I think sale of 60% will fund the purchase of the remaining 40% but exact figures will depend on the price at the time. Obviously, I do not know what other funds you are holding in your account but if you are at break even you will need to make a very quick decision depending on your brokers timescale and the settlement terms. However they might offer you an option to do this process automatically. (The jargon term for the process is tail swallowing).
d) Do nothing in which case the company will arrange for the rights to be sold in the market if possible and you will receive the proceeds. Your call but I do not like sailing blind personally.

I would never offer a view as to the right course of action for you. Everything depends on one's personal circumstances. As you say this has been a very strong performer but none of us can foresee the future.

Good luck whatever you decide

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Joy Woodstock 13th Jan '16 3 of 30

Thank you Gus and MH for your replies to my first post on this discussion forum. It is most generous of you to do this for someone you don't know! What you both said really helped me to understand the underlying decision involved and I have decided to buy the rights, but at least I know what I am doing now, and not just doing it blindly. This is a really helpful community it seems... thank you!


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gus 1065 9th Feb '17 4 of 30

In reply to post #117983

Hi Joy.

Not sure if you are still a shareholder here, but RPC (LON:RPC) announced another substantial acquisition this morning in the US together with a heavily discounted underwritten 4:1 rights issue. RNS link posted below:-


Detailed prospectus should be issued in the next day or so. Worth looking at the share price compared to the ex-rights diluted price (it's in the release) to get a view on what the market thinks of the deal. The RPC (LON:RPC) share price will most likely fall today due to the substantial discount of the rights issue strike price, but don't be spooked by this - price relative to the ex rights is what you need to look at.

I am a holder here too now, by the way.



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Mid Herts 9th Feb '17 5 of 30

Existing holders are already entitled to the rights in a nil paid form. So the share price for the ordinary has fallen back towards the theoretical price which allows for the value of the rights. But at this moment it is hovering about 18p ahead of the theoretical price of £9.80 so the nil paid shares should be quoted at around £3.30.

RPC has been in my portfolio for many years and is now the largest single holding having done particularly well in the time since the last rights issue. As it happens I trimmed my holding a little about a fortnight ago simply because of my overweight position but even so I am inclined to take up the rights because this management has earned my respect and they have given another strong trading statement in the announcement. It is interesting to note that the Stockopedia system does not rate the shares particularly highly on either quality or value although it does pick up the momentum. I think that this may be because it carries a fair amount of debt which has arisen as it has consolidated its position by a series of acquisitions. However the rights issue will address this in part by bringing debt in line with their target level.

I think RPC has quite a strong institutional following. It is for example the largest holding in Dunedin Smaller Companies Investment Trust. It is a pretty big company now and I think that over time we may see some transition as it attracts more mid market interest but becomes a bit heavy for those investing in smaller companies.

Holders still have all the options mentioned above and the choice is very much one that has to take account of personal circumstances.


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Mid Herts 9th Feb '17 6 of 30

Sorry, part of my comments were based on the idea that the rights had already been allocated but I see from the prospectus that it is tomorrow that the shares go ex rights. So it looks as if they will open lower than the anticipated diluted price mentioned in the circular so the nil paid rights will be worth less at the outset. The share price may well be volatile until the major market participants have taken a view. The options for holders remain the same and as ever the individual has to make a choice based on the prices and his/her own circumstances


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ln1sof 9th Feb '17 7 of 30

In reply to post #170959

From this morning's RNS announcing the acquisition and rights issue:

Expected timetable of principal events:

Record Date for the Rights Issue - Close of business on 7 February 2017

Admission and commencement of dealings in Nil Paid Rights on the London Stock Exchange - 8.00 a.m. on 10 February 2017

So I make it that they are already ex-rights and that explains the share price drop today. Trading in the nil-paid rights starts tomorrow.


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Mid Herts 10th Feb '17 8 of 30

In reply to post #170965

Hi Simon

Your interpretation is an easy one to make and I originally thought that the drop yesterday was due to the shares having gone ex rights. But the record date is not the same as the ex rights date which is clearly stated to be 10th Feb in the prospectus.

The prospectus contains some answers to possible questions and Nos 2.8 and 2.9 on pages 59 and 60 make the position clear.

You will see a further drop in the share price today which does reflect the fact that holders now have another valuable instrument in the form of the nil paid rights.

As I write the price is 928p compared with the theoretical price of 980p based on the last available share price before the announcement. So the overall position is a fall in the price of 5.3% approx.

In the short term that is not particularly surprising. There is a lot more stock on the market and someone has to stump up the money. The acid test will be the attraction of the stock as time goes by. Now that RPC is quite a bit larger the institutions interested may be rather different and of course the directors now have to deliver improved performance. This year looks to be pretty much in the bag but the trading statement at the AGM in the summer and the half year results will be the likely first indication. I take some comfort from their record so far.


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ln1sof 10th Feb '17 9 of 30

Hi MH,

Many thanks for putting me right. I've never experienced a situation where the ex-date post-dates the record date so a new one for me.

So the share price fall yesterday was nothing to do with eligibility to the rights but reaction to the announcement, including the reasons you indicated.


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Alina Ee 14th Feb '17 10 of 30

Quick question, if someone can help. I see that my nil-ppaid rights are in the red now. Do you know what is the break-even price? Also, presumably it is better for me to buy the shares on the market rather than to exercise the nil paid rights. Any thoughts?

Many thanks.

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