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Aviva preference shares price drop
Tim Blaxter
Posted: 09 March 2018 10:16:53(UTC)

Joined: 07/12/2015(UTC)
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After Aviva's results yesterday, the price of the General Accident 8 7/8% prefs dropped from 170 to 112. It looks like this was a reaction to Aviva suggesting that they might redeem the prefs at par. As they are irredeemable without shareholder approval, I presume that they will have to offer an incentive to make it worth the vote. As a holder, I'd be interested in views on what that incentive might be?
Posted: 10 March 2018 04:27:49(UTC)

Joined: 24/05/2015(UTC)
Posts: 1

My understanding (though I may be wrong), is that the shareholder vote would be all shareholders including ordinary ones and thus would be likely to pass without any incentive offered, they would simply be redeemed at par as per the terms. This would be very good for ordinary shareholders, but not so much for preferences ones, though thats always the risk and they have paid out handsomely over the years of low interest rates.
John Muirhead
Posted: 10 March 2018 10:14:16(UTC)

Joined: 10/03/2018(UTC)
Posts: 1

Is this a buying opportunity?

Most preference share prices have been marked-down by the market makers following the news relating to Aviva's Irredeemable Preference shares. However, the basis for this reaction seems to be mis-founded. The news relating to Aviva suggests that ordinary shareholders may vary the rights of the preference shares. This overlooks section 630 of The Companies Act 2006 which basically says that the rights of a class of shareholders cannot be varied unless 75% of the holders of that class of shares approve the variation. Also section 4.3 of Aviva Plc's Articles of Association states: "...the rights attached to any class of shares from time to time issued may, whether or not the Company is being wound up, be varied or abrogated with the written consent of the holders of not less than three-fourths in nominal value of the issued shares of that class ...". This latter reference is consistent with Section 630 of The Companies Act 2006.

So has the price mark-down in most preference shares been overdone? Judge for yourself.

John Muirhead
Stephen B.
Posted: 10 March 2018 10:38:57(UTC)

Joined: 26/09/2012(UTC)
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Tim Blaxter on 12/03/2018(UTC), dlp6666 on 12/03/2018(UTC)
Norman E
Posted: 10 March 2018 13:08:15(UTC)

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The link above explains the position, however it includes a copy of the letter that shows what happened at John Lewis, who redeemed 5% preference shares at par value, and 7.5% shares at a 50% premium. That was the honest way of dealing with preference shareholders. Aviva are proposing a dishonest way of doing it because many current shareholders have bought the shares at a substantial premium. In the John Lewis case I do not know the market prices of the securities prior to their cancellation, but suspect that prices were not too far from the amounts John Lewis paid to redeem them.

Aviva need to offer a premium on redemption.
2 users thanked Norman E for this post.
dlp6666 on 11/03/2018(UTC), Tim Blaxter on 12/03/2018(UTC)
Tim Blaxter
Posted: 12 March 2018 00:22:43(UTC)

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4.3 says it all...Aviva can all this a 'return of capital' and only pay out par
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Don Busby on 21/03/2018(UTC)
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