Citi Fsg Report- Dividend Decision for 2009 (1)

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GLOBAL

MARCH 2, 2009

CORPORATE
FINANCE

Financial Strategy

Carsten Stendevad
(212) 816-3808

carsten.stendevad@citi.com

New York
Anil Shivdasani

Cut or Continue?
The Dividend Decision for 2009

(212) 816-2348

anil.shivdasani@citi.com

New York
Shams Butt

+44 (20) 7986-2517
shams.butt@citi.com

London

This client report has been prepared by members of Citi’s Investment Banking Division. This is not a research report and does not constitute advice on investments or a solicitation to buy or sell any financial instrument.

MARCH 2, 2009

Cut or Continue?
The Dividend Decision for 2009

March 2, 2009

Cut or Continue?

Contents
Executive Summary ...............................................................................................................................

5

Dividend Cut Trends ......................................................................................

6

Dividend Cuts Growing Sharply in the US............................................................................................

6

Cuts Accelerate in Europe .....................................................................................................................

7

Dividend Policy in Asia Less Affected to Date .....................................................................................

8

Evaluating the Dividend Cut Decision ...........................................................

9

A Negative Short-Term Market Reaction to Dividend Cuts in the US..................................................

10

Signaling Effects Drive the Negative Market Response ........................................................................

11

The Market Reaction is Different in Europe..........................................................................................

12

Lessons from the Financial Sector .........................................................................................................

13

Share Prices Often Recover in the Long Term ......................................................................................

14

Additional Considerations ............................................................................. 15 Credit Rating Implications of a Dividend Cut .......................................................................................

15

Impact on Shareholding Structure..........................................................................................................

15

Stock Dividends Rarely Used as a Substitute ........................................................................................

17

Recent FSG Client Reports ............................................................................ 18

About This Report

The sharp economic downturn is forcing companies to undertake a dramatic overhaul of their operational and financial plans. Many companies are considering a step previously considered as a last resort — cutting or eliminating entirely the common dividend. We outline the primary questions companies need to consider when approaching this important dividend policy action. About the Financial Strategy Group

The Financial Strategy Group is the corporate finance analytical and advisory team within Citi’s investment banking division providing innovative and analytical solutions to corporate and sovereign clients on the full spectrum of corporate finance issues including valuation, capital structure design, acquisition strategy, funding strategies and liability management, risk management, shareholder distributions, along with credit rating advisory services.

We thank Tom Attenborough, Guy Seebohm, Dan Pakenham, Neil Shah, Ajay Khorana, and Joshua Li for helpful discussions and feedback; Max Gladstein, Priyanka Singh, Yash Anand, Kaushik Banerjee, Abhijit Das, and Ilya Tuzov provided exceptional assistance in compiling the data...
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