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# CPFL Energia S.A. Message Board

• paidtowait paidtowait Mar 29, 2011 4:21 PM Flag

## Correction to reverse split/split and ADR

From the bottom of the Material Fact we see that while the ADR's do not undergo the reverse split/split procedure, there we be a change in ratio which will mean a re distribution of ADR's as such using an \$80 per ADR price.

Prior split 1 ADR = 3 (Brazilian shares) x 26.67USD or 80USD

Post split 1 ADR = 2 (Brazilian shares) x 13.34USD or 26.67USD

Therefore the ADR's will be redistributed at a ratio of 3:1

2. Change of the Ratio of the Company's ADRs.

With the objective of (i) adjusting the price of the Company's ADRs traded on the NYSE, allowing access of new investors to the stock; and (ii) fostering greater liquidity of the Company's ADRs by reducing their individual value; the Board of Directors of the Company approved the change of the ratio of the ADRs from the proportion of 1 (one) ADR for 3 (three) common shares to the proportion of 1 (one) ADR for 2 (two) common shares.

The current proposal to change the ratio of the ADRs will be implemented concurrently with the simultaneous reverse split and split operations, submitted to approval by he Company's shareholders, so that the change of the ratio occurs only with the issuance of a new ADR for every two (2) ADRs - without the hypothesis of fractional ADRs

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• from what ive read, i dont know, when it comes to ADRs, if they are just gonna re distribute 3 ADRs to those people or if they are gonna pay those people fractions too. if you got 8 ADRs you could just receive 24 ADRs or they could pay you for the fractions. somebody tell me?

• so you guys beleive that if a person has 9 ADRs, they need to buy one more ADR in order to be divisible by 10 and not be paid the fraction. is that right? somebody give feedback cause i have an odd lot #

• Either way, on the last two posts from chops and mrssssam, it turns out to be a 3 for 1 split on the ADR's. I agree with this scenario. It has to be a 3 for 1 in order to keep us even in the proportion of underlying Brazilian shares our ADR's represent vis-a-vis the total outstanding number of Brazilian shares post split (i.e. in order not to unfairly dilute the ADR holders).

• The only way this makes any sense is if I end up with 2250 ADR's instead of my current 750 ADR's. That's a 3 for 1 split on the ADR's. If each ADR ends up representing 2 of the underlying Brazilian shares, I end up with my ADR's representing 4500 Brazilian shares which is twice as many as before all this to accommodate for the 2 for 1 split in underlying Brazilian shares. I still don't understand why they didn't just announce a 2 for 1 split of the shares in Brazil instead of all the BS with the reverse split (1 for 10) and then the other split (20 for 1). Does anyone understand that? I guess this all makes sense to somebody because the ADR's keep going through the roof.

• It seems from the release that the reverse split of 1:10, will eliminate shares held in odd lots since only holdings divisible by 10 will remain as shares, the remainder will paid off in cash.

Management believes that there are a significant number of shares that will be eliminated this way. Think of it as a mandatory share buy back, however there is a window for such owners affected to top up their holdings to avoid loosing shares.

Now with the reduced number of outstanding shares the split, 20:1, will restore things to a more normal and investor attractive per share valuation.

As for your personal holdings ignore the share split in your calculation and proceed as follows using ADR price of 80USD:

Pre Ratio change, pre Brazilian split:
1 old ADR = 3 Brazilian x 26.67USD = 80USD

Post Ratio change, pre Brazilian split:
1 new ADR = 2 Brazilian x 26.67USD = 53.34USD

I hope this makes sense

• I don't really believe ADR holders are intended to be deluted by this. The stated intent was only to reduce pricing. If post split, the number of outstanding brazilian shares double, and with the Brazilian shares represented by an ADR also being changed from 3 to 2, the number of outstanding post split ADR's should increase by a factor of 3 to remain equal. 1 ADR (3 Brazilian shares) should become 3 ADR (6 Brazian shares). Thats how I believe it "should" work anyways, we'll see. Their statement seems to say something different, but market reaction appears to be positive. Hopefully, CPL will clarify tomorrow.

• Ok...I'm going to check out Edgar. I subscribe so I might as well use it. I would think the SEC forces these guys to file something. You're right about the fact that this wouldn't pass the smell test and the ADR's would've sold off dramatically. At least that's what you would assume if anyone's paying attention. Where is this "material fact" stuff coming from? The CPFL website? I'm going to go on Edgar tonight and see if I can find something. And what about the earnings?!?! If they're down that bad you would also assume a big selloff if anyone's paying any attention. I'll be very interested to see what happens tomorrow.

With regard to the dividend, I also thought it was lower than I expected, and than it's been recently. The cause was that they pay out 95% of earnings over the prior 6 months as a dividend and the earnings were lower than in 2009. But if you listened to the conference call this morning and viewed the accompanying slides, you'd see that the earnings drop was due mostly to an accounting change that applied not just to CPFL but other Brazilian companies as well. It was pointed out that without the change the earnings (and presumably the dividend) would have been a lot higher. I believe this was a one-time change so future earnings and therefore dividends should be higher. I don't know that for sure but if future earnings were expected to remain depressed then again I think the stock would have declined today.

• OK...I'm still agreeing with chop, we're getting a royal screwing. Currently I own 750 ADR's. That means that I own 2250 of the underlying shares (each ADR represents 3 Brazilian shares). If I'm understanding what everyone's saying, after all these manoeuvers by management, I'll own 1125 ADR's (750 + 375 or a 3 for2 split). But each ADR will only represent 2 Brazilian shares instaed of 3. So I end up with my original 2250 underlying Brazilian shares. But there are twice as many outstanding Brazilian shares now so I have been hugely diluted!! This is a horrendous ripoff!! Also, the dividend is nowhere near wht I expected it to be. It was supposed to be over \$2.40 per ADR...at least that was my expectation. It's nowhere near that at R1.01 per Brazilian share!! WTF is going on??!!! Anyone?? Am I missing something here?

• I now believe the statement of Material Fact is incorrect.

I believe the ADR's will be re-distributed with 2 for every one held.

Therefor
at present
1 ADR = 3 Brazilian shares

following the reverse split/split

1 ADR = 6 Brazilian shares

following the ratio change were 1 ADR = 2 Brazilian shares

3 ADR = 6 Brazilian shares

If as you say that "this is a horrendous ripoff" it wouldn't pass the investment community so I must assume it was an incorrect statement which will be corrected or explained in the comming days.

• "The current proposal to change the ratio of the ADRs will be implemented concurrently with the simultaneous reverse split and split operations, submitted to approval by he Company's shareholders, so that the change of the ratio occurs only with the issuance of a new ADR for every two (2) ADRs - without the hypothesis of fractional ADRs".

This statement sounds like the re-disribution of ADR's will be 3 for 2, not 3 for 1 as you hypothosize. 3 for 2 would be apropriet with the change of 3 shares per ADR verses 2 shares per ADR.
But with the 2 splits, I'm still being diluted by 50% with the doubling of outstanding shares.
I think we're still missing something.
Thanks for you input.

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