Citigroup in defensive mode with poison pill

This is a bad situation and the Tax Payer has been duped!

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Citigroup on Wednesday introduced a “poison pill” that discourages investors from buying more than 5 per cent of its shares and deters large shareholders from raising their stakes in an effort to protect a $43bn tax benefit.

Citi’s surprise move came as the company launched its long-awaited $58bn conversion of preferred shares into common stock which will leave the US government with a 34 per cent stake and help the bank bolster its battered balance sheet.

Under the new provision, if an investor buys a stake of more than 5 per cent in Citi, or if an existing shareholder with more than 5 per cent increases its holding by more than 50 per cent, all other investors will in effect be able to buy one share for every share held at a 50 per cent discount to the market price.

The poison pill, which Citi called a “tax benefits preservation plan”, will not apply to the US government. The authorities will become Citi’s largest shareholder after the conversion of about $25bn of preferred stock that they received in their multiple bail-outs of the company.

Citi will also convert $33bn in preferred shares held by non-government investors, including several sovereign wealth funds. Citi will issue about 17bn new shares in the conversion, diluting existing shareholders by more than 70 per cent.

http://www.ft.com/cms/s/0/69023f08-55e5-11de-ab7e-00144feabdc0.html

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