Curious minds have pondered the meaning of the Great Tax Reform Act of 2017, properly known as the Tax Cuts and Jobs Act of 2017. The debate has centered on whether repatriation or employee salaries or buybacks or dividend increases or debt repayment or capital investment. Until Walmart, announcements have centered on bonuses or hiring pledges. Not wages. Not anything, really, that is a truly lasting benefit to the working stiff.
And this week is no different. In a nod to the roughly 50% of population that own stock, Thursday, DST Systems announced they were being acquired by SS&C Technologies Holdings in an all cash deal valued at $84 per share. While M&A activity is not an unexpected byproduct of the tax bill, there were two noteworthy items in the release. The first being SSNC’s deal financing being a combination of debt and equity. Current SSNC shareholders will be facing some level of dilution. The second item is that the “significant leverage” will be attenuated through “cost synergies to stem from data center consolidation and reductions in corporate overhead”. This sounds like code words for force and facility reduction. Are there that many data centers on the company books?
Not being a SSNC shareholder (current or apparently future) appears to be a blessing in this merger. As a DST shareholder I will be happy to tender my shares (and vote my proxy in favor of) the deal. My only regrets are two: 1) Kansas City (for which I have a fondness) losing another company’s headquarters , and 2) that I didn’t own more shares.
My shares were purchased in four tranches with an average (post split) basis of $62.71. Total gain will be $21.29 per share or 25.3% total gain (annualized average gain would be about 11.7% depending on when it closes). Not too shabby a return and a good start towards equaling last years’ results. The merger is expected to close in the third quarter.
The only other negative is the (new) tax impact with these gains likely locking me into the higher bracket I was attempting to avoid. My philosophical observation being unless you’re extremely wealthy, the best way to avoid taxes is to make no money. A theory to which I don’t subscribe!
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SR, I’m hoping that all else being equal, the new tax law will result in larger dividend increases this year. Thoughts?
Thank you for adding DD to your blogroll. That is a very comprehensive list. What is all the color coding of the different sites?
Tom
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My operating assumption is increases on par with last year on average. I think there’s a little fear that this could be a one year plan depending on midterms. I suspect greater emphasis will be on buybacks (managing earnings and cash flow) and investing in automation (productivity gains via expensing particularly with the five year sunset clause). Each of these could be a positive regardless of the dividend rate.
The coding (other than new entries) is my code on trying to figure out paid professionals, subscription sites, bloggers with multiple aliases – basically anything that’s not normal. This part is a work in progress. Thanks for visiting!
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I’m thinking it’ll mean more stock buybacks myself. It’s always better to fatten up those future EPS if you’re a CEO and now they have more money to do it.
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That’s probably the most likely along with strategic M&A. This acquisition with the debt (and dilution) in a rising interest rate environment has me scratching my head a little. So I’ll collect a couple more dividends and ride this one into the sunset. The good news is this might be the wave I was looking for to enable me to pare my holdings a bit! Thanks for the comment!
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