It is a complex calculation and is different for all investors but basically the buyback will be worthwhile for pension funds or other investment vehicles paying little or no tax but not for most other investors.
We are assuming that the maximum discount will occur (14%) which means that you only get $4.79 for your Telstra shares versus a current price of $5.57. But because the $4.79 is made up of a $2.33 capital return and $2.46 of full franked dividend (based on the current price) the total grossed up amount received is $5.84.
But as soon as the tax rate gets above 7% the tax on the dividend offsets the franking credit to the extent that it is not worthwhile.
There is the additional factor that investors can claim a tax loss on the difference between their cost base for the shares and the $2.33 capital return (assuming that they can use the tax loss).
But if investors are going to offer their shares into the buyback and then repurchase the shares that will incur costs.
So simplistically I would only do it for zero tax or low tax investors.
Please note this is general advice and please contact us if you would like personal advice.
Please click the attached Morningstar Report if you would like more information.
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