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Untying the Knots: Simplifying Corporate Actions

31 January 2022 Madhu Ramu

Understanding the impact of corporate actions is necessary when contemplating the right investment strategy. This impact is driven by timely awareness, accuracy, and attention to detail. In this blog, IHS Markit's Managed Corporate Actions™ team will discuss some of the most dominant corporate actions announced each month and the roles they take in the marketplace.

Venturing into the Metaverse

On January 18, 2022, Microsoft (MSFT) announced a Plan of Merger to acquire Activision (ATVI) for USD 68.7 billion in an all-cash offer. If approved, and upon completion of the Acquisition, Microsoft will be the third-largest gaming company behind Tencent and Sony by revenue, perfectly positioned to grow in the metaverse space [1].

What is the Metaverse?

The Metaverse is a shared virtual 3D world, offering an interactive and immersive experience where users may socialize, collaborate, and play with other users in the community. User profiles are not limited to a single platform or software. Instead, you take your online presence with you wherever you go, allowing us to interact with technology in a new way. Imagine the endless possibilities the Metaverse offers if adopted across every user in the world - it will take human interaction to the next level.

When you reflect on how the COVID-19 pandemic has changed the global landscape for human interaction, we are using communication devices of the past - a webcam and a headset. While this functions, the missed physical element may result in a lack of cohesiveness in the workplace.

The CEO of Microsoft, Satya Nadella, has repeatedly spoken out about how the Metaverse will transcend how we communicate, interact and transfer items across the Metaverse. He states that buying the "Call of Duty" and "Warcraft" maker "will provide building blocks for the metaverse" and that gaming "will play a key role in the development of metaverse platforms" [2] [3].

It's catching on…

Microsoft isn't the only tech firm preparing for this shift in our online presence. Epic Games, Facebook (recently rebranded to Meta), Nvidia, Unity, and others are working to build the infrastructure that will become the Metaverse. Gamers… are you excited?

Is MCA keeping up with this?

Absolutely! While the announced acquisition price of USD 95 per share is known, key dates are to be announced, estimated to close in 2023. As with all massive acquisitions, shareholder approvals and regulatory reviews are required and pending.
As information is released in the market, MCA will continue to update the (currently Incomplete/preliminary) Merger/Cash event. Stay tuned!

BIVIDEND: The First Bitcoin Dividend

On January 5, 2022, Nasdaq Composite registered its biggest daily loss since February 2021, driven by the release of the Federal Reserve Board and the Federal Open Market Committee meeting minutes held in mid-December. The minutes cited the Fed's intention to increase interest rates faster than expected.

However, it was the opposite for one Nasdaq listed company, with shares jumping 44%! On January 5, blockchain technology company BTCS became the first Nasdaq-listed Company to offer a Dividend in Bitcoin - branded by the company as a "Bividend".

BTCS shareholders of record will receive a Dividend (in the form of Return of Capital) of USD 0.05 per share, payable in cash or Bitcoin, based on the price of Bitcoin on the Ex-Date (March 16, 2022). Investors can opt-in to receive Bitcoin, else they will receive the cash distribution of USD 0.05 [4].

What does "shareholders of record" mean in this case?

Qualifying a "shareholder of record" isn't something we typically have to question for an optional Dividend. Considering this is the first-ever cryptocurrency distribution, it makes sense that investors, brokerage firms, and custodians may not be ready to process and reconcile Bitcoin against accounts fluidly. BTCS has tried to simplify the process with an eligibility requirement: For shareholders to receive the Bividend, they must complete an opt-in agreement and transfer their shares to the BTCS transfer agent (Equity Stock Transfer) prior to the Ex-Date. They must also provide a valid bitcoin wallet address to receive the Bividend [5].

Someone had to be the first…

BTCS has a long history of "firsts" in the digital asset space. These include being the first pure-play US public company focused on blockchains and cryptocurrencies, the first US public company to mine Bitcoin, the first to secure next-generation proof-of-stake blockchains and the first to implement a digital asset treasury strategy.
BTCS CEO Charles Allen stated, "We want to reward our long-time shareholders for their continued support and encourage financial freedom by providing the means to enable direct ownership of Bitcoin and other digital assets."

Cryptocurrency adoption and financial freedom are said to be paramount to the BTCS ethos. Additionally, the Company seeks to build a shareholder base comprised of long-term fundamental holders and temporarily remove shares from the tradeable float.

What do financial experts think of this?

Following the Bividend announcement on January 5, BTCS shares jumped more than 30% in less than an hour to USD 4.00, leading to an increase in market capitalization of nearly USD 10 million. Investors and traders interpreted the announcement as a sign to increase their bids for BTCS shares, and by close, the stock was up nearly 44%. Prices have remained relatively steady over the past month.

However, not everyone is as optimistic as the market. Some financial experts warn investors not to buy BTCS stock based on the hype surrounding the Bividend. According to Ivory Johnson, chartered financial consultant and certified financial planner, investors' decisions should be based on the company's fundamentals when purchasing any stock. His advice is: "If you want to own that company, then own that company, (…) but if you want to buy bitcoin, then buy bitcoin" [6]. Regardless of whether you invest in bitcoin directly or indirectly through other means, experts recommend investing only what you can afford to lose [7].

Critics are also skeptical about the logistics surrounding the distribution of Bitcoin. To pay individual shareholders could prove difficult as most US investors own their stock via a third party, much unlike Bitcoin. Additionally, not all shareholders have a Bitcoin wallet and might have trouble complying with their custody obligations, causing havoc for financial intermediaries [8].

As mentioned earlier, BTCS is coordinating with Equity Stock Transfer, LLC, a New York City-based SEC-registered transfer agent, to coordinate the logistics and processing of the Bividend. We will see how it goes….

What happens next?

We are left with many questions surrounding the future of cryptocurrency and its role in corporate actions. Will BTCS issue future Bividends, or will this be written off as a failure? Will other companies follow suit and issue their own Bividends? Will this eventually extend to include Ethereum, Tether, USD Coin, and other cryptocurrencies? If so, how quickly, willing, and able will financial intermediaries like brokers, custodians, and depositories are to react and accommodate?

As financial markets evolve, Managed Corporate Actions will continue to deliver solutions through innovation, subject matter expertise, and flexible technology.

Shell: No Longer Royal, No Longer Dutch

On December 20, 2021, the Board of Royal Dutch Shell plc, a company incorporated in the UK but with Dutch tax residence, announced the amendment of their Articles of Association, enabling a simplification of its dual share structure and the alignment of its tax residence with its country of incorporation in the UK.

But what does this simplification entail?

Let's first look at the current share structure. Royal Dutch Shell has long maintained a dual listing in the UK and the Netherlands, with two ISIN codes paying dividends:

• GB00B03MLX29 - A shares: Cash dividends on A Shares paid in Euros (default), with the option to elect to receive dividends in US Dollars or Pounds Sterling. Subject to 15% Dutch withholding tax.

• GB00B03MM408 - B shares: Cash dividends on B Shares paid in Pounds Sterling (default), with the option to elect to receive dividends in US Dollars or Euros. Not subject to withholding tax.

The simplification will establish a single line of shares listed in the UK and the Netherlands, eliminating the complexity of the previous A/B share structure, with future distributions bound only to UK taxation. This became effective on January 31, 2022, for most listings; admission to trading on NL listing on February 2, 2022.

The Company will also align its tax residence - currently in the Netherlands - with its country of incorporation in the UK by relocating the Board and Executive Committee meetings, the CEO, and CFO to the UK.

Lastly, the Company is changing its name from Royal Dutch Shell plc to Shell plc (effective January 25, 2022), as the Company will no longer meet the conditions for using the honorary Royal designation [9].

Some things will remain unchanged:

• Post-simplification, shareholders will retain the same legal, ownership, voting, and capital distribution rights in Shell as Royal Dutch Shell.
• The Company's shares will continue to be listed in Amsterdam, London, and New York (through the American Depository Shares program) with FTSE UK Index inclusion. It is fully expected that the AEX Index inclusion will be maintained.
• The simplification does not alter the total number of shares held; the number of ordinary shares held by a shareholder immediately after the assimilation will be equal to the aggregate of A, and B shares (reflected by MCA as a 1:1 Mandatory Exchange) previously held.
• Shell's corporate structure will also remain unchanged, with no impact on legal proceedings related to the Dutch Court Ruling.
Is the hassle worth it?

Well, in the words of Sir Andrew Mackenzie, Chair of the Board of Royal Dutch Shell:
"This will simplify the Company's share structure and bring it in line with other companies to increase its capital and portfolio flexibility. The simplification will make Shell more competitive; it will allow for an acceleration in shareholder distributions and speed up Shell's transition to a net-zero emissions energy business (…) The Board believes the simplification is in the best interests of the Company, and shareholders as a whole, and that the benefits of the simplification will outweigh any potential costs associated with it. (…) Shell is rising to meet the court's challenge and has recently announced a new absolute emissions reduction target. At a time for unprecedented change for the industry, it's important for the Company to have an increased ability to accelerate the transition to a lower carbon global energy system. This simpler structure will cause Shell to accelerate the delivery of its Powering Progress strategy, while creating value for shareholders, customers and wider society" [10].

Does this ring any bells?

That's right! Relx first (in 2018) and then Unilever (in 2020) abandoned their dual Anglo-Dutch structure in favor of a single London-based entity.

Dual listings, which are more expensive to maintain, appear to be falling out of favor in 2022: TechnipFMC has recently decided to delist from Euronext Paris and have a single listing on the New York Stock Exchange [ 11]. Last week, BHP shareholders approved a company proposal to abandon a 20-year-old structure with listings in London and Sydney in favor of a single primary listing in Australia [12].

CNH Industrial N.V. - Keep on Truckin'

CNH Industrial is a global capital goods company specializing in equipment and services for agriculture and construction. The widely held Company is listed on the New York Stock Exchange (CNHI) and Borsa Italiana (CNHI.MI). On December 23, 2021, the Company announced shareholder approval of the proposed De-Merger of its "On-Highway" Iveco Group business [13]. Iveco Group N.V. is engaged in the design, production, marketing, sale servicing, and financing of trucks, commercial vehicles, buses, and specialty vehicles for firefighting, defense, and other uses.

What makes this Spin-Off different?

Spin-Offs happen, so why are we talking about this one? Under the terms of the De-Merger, CNHI common shareholders on record as of January 4, 2021, were entitled to receive 1 new Iveco common share for every 5 CNHI common shares held. However, the Iveco common shares listed on Euronext Milan (IVG.MI) can only be held and settled within Monte Titoli (MT) systems, the central securities depository for Euronext Milan. The Iveco Group shares will not be registered under U.S. federal securities law, and they will not be eligible for clearing and settlement through the Depository Trust Company (DTC) or on a register maintained in the U.S.

Due to the additional steps required for US holders to obtain the new shares the default option for this Spin-Off is to receive Cash… eventually. For holders who did not jump through the hoops required to elect new shares, entitlement shares will be sold in the market with cash proceeds to be distributed in USD sometime after June 2022 [14].

Breaking it down for DTC and Registered US Holders

Entitled CNHI shareholders who either (i) failed to submit a valid MT Election by 5 pm EST on January 4, 2022, (ii) do not have access to an MT participant account, or (iii) submit an MT Election but are unable to complete the delivery/receipt of such Iveco common shares via an intermediary participant in the MT system within 10 business days of the Settlement Date (which commenced on January 5, 2022) will have their entitlement to Iveco common shares deposited in a provisional MT account opened by Iveco Group. CNHI shareholders can then submit an MT election to receive the Iveco Group shares on MT for six months.

At the end of this period, Iveco Group will close the provisional MT account and sell the shares on Euronext Milan. The pro-rata sale proceeds will then be distributed to relevant shareholders in USD [15].

FUN… right?

Our Managed Corporate Actions Experts will continue to monitor future announcements made to all the above postings to ensure the most accurate and reliable corporate actions data coverage. Please reach out for more information or questions.

Interested in more? Please find:

Managed Corporate Action's November Postings

Managed Corporate Action's October Postings

Managed Corporate Action's September Postings

Managed Corporate Action's August Postings

Managed Corporate Action's July Postings

Managed Corporate Action's June Postings

Posted 31 January 2022 by Madhu Ramu, Managing Director, Corporate Actions, S&P Global Market Intelligence

IHS Markit provides industry-leading data, software and technology platforms and managed services to tackle some of the most difficult challenges in financial markets. We help our customers better understand complicated markets, reduce risk, operate more efficiently and comply with financial regulation.

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