HEDGE FUNDS looked to be positioning themselves for a dividend wash of BT Group yesterday. The telecom giant, which rose 1.75p to 188p, has seen brisk trade in its shares over the past three tradingdays and yesterday more than 156 million shares changed hands.
BT Group goes ex-dividend today and was due to pay 3.2p a share to everyone on the company’s share register at yesterday’s close of business. Hedge funds will not make the money from the dividend payment itself but from the tax credit they receive by channelling the shares they own through a French bank.
The dividend wash scheme works something like this: hedge funds go to institutional investors who own BT shares and borrow the stock, assuring the institutions that they will get their dividend as usual. The hedge funds then strike a deal with a French bank. It must be a French bank because locals enjoy a lower tax rate on dividends than those in the UK. Once the hedge funds get the stock they have borrowed they then sell it to the French bank they have a deal with.
The French bank then waits to get the dividend on the shares, plus a tax credit from the French government for the difference between the rate at which dividends are taxed in France and the UK. The French bank then splits the money from the tax credit with the hedge fund and soon after returns the borrowed stock back to its original institutional holder along with the cash from the dividend and a little extra to the institution for its trouble.
The scheme is essentially risk free and the more stock the hedge funds can borrow from institutional shareholders and channel though a French bank the more money they will make. Some hedge fund managers are certainly going to have a very happy Christmas this year.
Meanwhile, the FTSE 100 index rose 16.9 points to 4,440.9. The FTSE 250 gained a more impressive 33.6 points to 5,749.6. Sage put on 1.5p to 171p after announcing plans to buy ACCPAC, a US software business, for pounds 62m. ACCPAC is a subsidiary of Computer Associates and sells accounting and customer relationship management software to small and medium-sized businesses in the US, Canada, South Africa and Australia.
Panmure upgraded its recommendation on British Polythene Industries, 5p higher at 305p, to “buy” from “outperform” and set a 350p price target on the stock after Monday’s trading statement from the group. BPI has benefited from strong demand for its construction and refuse plastics bags.
Management Consulting put on 2.5p to 23p as Kevin Parry, the chief executive, bought 50,000 shares at 21p each while Stephen Purse, the finance director, picked up a more modest 25,000 at the same price. Shares in the group hit a low of 19.25p last month after it issued a full-year profit warning. Management Consulting blamed the sudden loss of a major client and the weakness of the US dollar for the setback. Vebnet, unchanged at 66.5p, saw Sandy Nairn, the group’s deputy chairman, disclose the purchase of 50,000 shares at 62p taking his total holding to more than 12 per cent.
Cape ticked 0.5p lower to 62.5p as Credit Suisse First Boston sold down its holding in the building services group.
Blavod Black Vodka returned from suspension 25p lower at 32.5p following the group’s pounds 2.4m acquisition of Extreme Beverage. The AIM-listed spirits group also raised pounds 10m through the issue of 40 million new shares at 24.5p, which will be used to fund Blavod’s development. The famous bear raider Simon Cawkwell, aka Evil Knievil, is believed to have participated in the placing and now holds a sizeable stake in the group.
Tadpole Technology jumped 1.75p to 11p on speculation that its Endeavors unit has signed a deal with a major US technology corporate. Market gossips talked of a link-up for Endeavors with Microsoft or Intel and of a $2m up-front payment for Tadpole. JKX Oil & Gas jumped 4p to 52p after announcing its first ever export of gas from the Ukraine.
JKX has been in the Ukraine since the collapse of the Soviet Union in the early 1990’s and under the terms of a new contract its local subsidiary, Poltava Petroleum, will export 720 million cubic metres of gas over the next three years. Investec Securities upgraded JKX to “buy” from “hold” on the back of the news, which it described as a significantly breakthrough for the company.
NSB Retail ticked 0.25p higher to 16p amid evidence of stake building at the company. Michael Burn, a former City stock broker, disclosed the purchase of a 1.2 per cent stake, which takes his total holding to 4.3 per cent.
Last week, NSB unveiled the sale of its UK business to BT while talk of a major contract win for the software group from Mothercare has been doing the rounds of the Square Mile since the start of the month.
Rumours of strong trading at Alpha Airports pushed its shares 2p higher to 79.5p. Innovation Group jumped 4.5p to 27.5p on talk of continued stake building by the former Scoot.com boss Robert Bonnier. Mr Bonnier has been doing the buying via his Paris-based ICE SAS investment vehicle.
MARKET MOVERS
bMarks & Spencer 284.25p (up 8.25p, 2.9 per cent). Buyers return to the stock after recent weakness.
bBunzl 424.75p (up 9.75p, 2.3 per cent). Buys back 200,000 of its own shares for cancellation at 419p.
bAstraZeneca 2,679p (up 44p, 1.7 per cent). Wins French regulatory approval for its Exanta product.
bTorex 666p (up 68p, 11.4 per cent). iSoft declares its offer for Torex wholly unconditional.
bVT Group 238.5p (up 10p, 4.4 per cent). Shipbuilder buys several US contracts held by JA Jones Services, a company currently in Chapter 11 bankruptcy proceedings.
bHarrogate Group 0.47p (up 0.05p, 11.9 per cent). Interim losses narrow at Harrogate.
bMacfarlane 26p (up 2.5p, 10.6 per cent0. Directors, led by Archie Hunter, the chairman, pile into the stock.
bHardman Resources 38.5p (up 3.5p, 10.0 per cent). Boasts that its latest Tiof West discovery will be larger than its Chinguetti field.
bCradley Group 8.5p (up 0.75p, 9.7 per cent). John Wheatly, the chairman, buys 35,000 shares at 8.5p.
bToad Group 18.5p (up 1p, 5.7 per cent). Talk that the group is close to securing a deal with a telecom company excites.
nWood Group 132.75p (down 16.75p, 11.2 per cent). Issues a profit warning due to poor trading at its Gas Turbine Services division.
nFrench Connection 327p (down 23p, 6.5 per cent). Investors continue to worry about trading at clothing retailers.
nCyprotex 14.75p (down 24.4 per cent). Raises pounds 3m via placing of 30 million new shares at 10p.
nCompact Power Holdings 18.5p (down 2.5p, 11.9 per cent). Warns that its full-year sales will be significantly below market hopes.
nFfastfill 5.62p (up 0.75p, 11.8 per cent). Raises pounds 1m via a placing of 20 million new shares at 5p.
nNames.co Internet 5.12p (down 0.75p, 12.9 per cent). Shares resumes trading on AIM after the company completes a reverse takeover.
SEAQ TRADES: 133,003
SEAQ VOLUMES: 1.99bn
