There are no free lunches in finance, but for Australian investors, franking credits can be the next best thing. Luke Cummings, Chief Investment Officer at Harvest Lane Asset Management, says that many M&A transactions are structured to include a fully franked dividend as part of the headline price. Australian investors can benefit from the attached franking credits, however, they are often not priced in. He shares the example of Seymour White, where $0.38 of the $1.28 takeover price was in the form of a fully franked dividend. For investors who could use the franking credits, the grossed up to a value of around $1.40, however, the share price didn’t trade above $1.28 throughout the whole process. Watch today’s video to hear more about the value of franking credits in M&A transactions.
Seymour Whyte did in fact trade above $1.28 during the takeover process. I sold for $1.37.