On August 7, 2009, stockholders of record as of the close of business June 22, 2009 will receive a dividend with a nominal value of $1.07. Depending on the shareholders' individual elections, they will receive either a distribution of cash and stock ($0.185 and 0.275 shares per share) or a distribution of stock (in which case, 0.332 shares distributed per share held). Investors holding the shares in a taxable account will be taxed in either case as if receiving $1.07.
What's the impact of this on shareholders? For the sake of simplicity, the Jaded Consumer will first look at the case of a stockholder whose shares are held in an IRA or other tax-deferred account. The $0.185 will be worth exactly 18.5¢ on August 7 when paid. The trick is to estimate the value of a shares received on August 7 is more, or less, than the $3.2199 price against which the division was calculated.
In one sense, the value difference is purely speculative: ACAS has hardly closed the same price two days in a row in months, and on day in which the shares were traded at all, they were certainly traded at more than one price. Who knows what the price will be August 7?
In another sense, ACAS' share price on August 7 is immaterial if ACAS' net asset value -- the value on which ACAS is earning shareholders their future returns -- is several times the share price. While the NAV will certainly decrease in the issuance of new shares just as it would decrease in the case of a stock split (a 0.332 share dividend looks an awful lot like a 1.332-for-1 stock split, save for its tax characteristics), the fact is that this is not a stock split: some shareholders are getting cash, at cash value, and not shares with an arguable value related to NAV. This means that stockholders who elected to receive only shares (that's about 40% of the outstanding shares) will end up holding shares that represent a greater fraction of ACAS' net assets than the stockholders who elected to get a partial payment in cash. Those folks effectively sold their stock split at $3.2199 per share.
Based on recent sales that suggest ACAS can realize more value than it is allowed to claim under FAS 157, I suspect that the long tern value of the shares is not only more closely related to asset values than to trading price, but that the value of the assets is also rather greater than reflected in ACAS' recent SEC filings.
I think the August 7 payment will be a good thing for those who elected not to be paid in cash.
(Those who hold shares in taxable accounts will have to figure out what their after-tax net is on receipt of the shares to estimate what their returns are, but if NAV is several times trading price, receiving shares remains the clearly superior choice for post-payment value.)