National Grid Share Consolidation – Who Are They Fooling?

Shareholders in National Grid (NG.) will have received a notice of a General Meeting to approve a share consolidation (at least that’s those of you on the register of the company, others in nominee accounts may be surprised later by the change in their holding).

This proposal is linked to the return of cash to shareholders following the sale of the company’s interest in a gas distribution business. There will be a large “special” dividend as a result – more on the tax implications of that in a later article.

But the company is also doing a share consolidation which they explain as taking place “in order to ensure that so far as possible, the market price per new ordinary share following the special dividend will be comparable to the price per existing ordinary share prior to the special dividend”. In other words, instead of the share price falling (to reflect the return of capital) and your shares remaining the same in number, the number of shares you hold will be reduced while the share price is maintained.

Who are they trying to fool by this sleight of hand? Do they really think investors are so stupid that they will not realise that the value of their shareholding has been reduced (offset by the dividend received to some extent, if not fully by dividend taxes on private shareholders)?

This consolidation will no doubt incur significant legal and advisory costs on the company, generate unnecessary work for share registrars and stockbrokers, and also create work for investors in adjusting their portfolio records.

I for one will be voting against this consolidation, and I suggest other shareholders may wish to do the same. That would not impede the dividend payment in any way of course.

Roger Lawson


16 thoughts on “National Grid Share Consolidation – Who Are They Fooling?

  1. I understand that a reason that companies frequently consolidate their shares after a substantial return of capital is to avoid a discontinuity in the share price chart!

    Now, I agree that this is a poor excuse for the admin overhead this creates, but I guess companies are concerned that the community of “technical” traders could drive the share price further down, as a result of such a discontinuity and the “chart signal” it sends.

    Mark Bentley

    • Most charting suppliers now do adjust the chart to reflect share consolidations so I think this is an excuse that no longer applies, unless you are using a poor quality supplier of charts. Roger Lawson

  2. Am I missing something here. A special dividend implied that the company is doing so well they wish to reward shareholders accordingly. This is Not the case with NG. They are returning our capital and treating it as income. I am fully behind Roger Lawson.

  3. I would agree about the effect on charts, you often see “cliff edges” after big dividends, and even if you know what happened it makes it hard to see trends across the boundary.

  4. I also think we will be worse off after this special dividend & consolidation after considering tax.
    I am considering selling my modest position of 298 shares and buy back after all this is over.
    Since I have an odd share number, after consolidation I would have 264 shares and am unsure as to what will happen with the old 10 shares that are not enough to get an extra new share, has NG confirmed they will pay cash for partial/odd shares?

  5. This is bullshit there is no reward here if I am lucky I may break even. The union has a contract that says we can reinvest all dividends at a 15 percent discount. Then to pay capital gains on what they send me are u kidden me this is wrong. Who is watching over this.

  6. My mother passed away and we were left a very small amount of shares each. I was just trying to understand how my 20 shares became 18. I am not at all educated about stocks. Thank you to anyone who can help my pea brain understand this.

    • The total number of shares a company issues is arbitrary. If a company is considered by the stockmarket to be worth, say, £1 billion then if it has 1 billion shares they would be worth £1 each, but it could just as easily have 100 million shares and they would be worth £10. In this case the company has replaced all its shares with a different number of new shares, so everyone has fewer shares but the price per share should be correspondingly higher. The argument being made above is that this process costs some money and hassle for shareholders and is pointless since it doesn’t change anything that matters, so they shouldn’t do it. The argument made by the company would be that the cost isn’t very much and that it causes less confusion if the share price stays about the same – they paid out a big chunk of money so the value of the shares would drop, but the reduction in the number of shares cancels that out, more or less, so the price per share stays the same.

  7. I have just received my ‘special dividend’. Since this presumably comprises a combination of the regular dividend and the return of capital, does this mean that I am liable to income tax on the latter money that is just being returned to me?

    • Basically yes. Dividends are income so subject to income tax, although the rates are different to other forms of income – at the moment you have a £5000 tax-free allowance and then the basic rate is 7.5% and the higher rate is 32.5%. There will also be some impact on capital gains in that it reduces the value of the shares by about the value of the dividend and hence reduces any gain if you sell, but capital gains are only taxed when you sell. (Also of course neither dividends nor capital gains are taxed in an ISA or pension.)

  8. Hi All,
    It would appear that after consolidation I now have 134 shares less than before, and as a result will receive 134 less final dividend payments of 29.1 pence totalling approx £39.00. Could somebody explain how this consolidation has returned cash to me as a shareholder in the company.

    • You should have had a large special dividend on June 2nd, that was the cash return. After that cash is paid out the company is smaller, so all future dividends (in cash terms) will also be smaller. The reduction in the number of shares means that the dividend in pence per share is about the same as last year (29.1 vs 28.34). If they hadn’t reduced the number of shares you would have got the same amount of cash but the value in pence per share would have been smaller.

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