TNAG-2474-FCO40-3604-Business-matters-in-Hong-Kong-acquisition-of-Midland-Bank-by-1992 — Page 43

in all respects and the business day following the day on which the Cash Election closes, will be calculated as the sum of the semi-annual redemption yield on the UK 9 per cent. Treasury Stock 2002 and a margin of 2.40 per cent., converted to an annual basis and then rounded to the nearest 0.01 per cent. The bonds will constitute Tier 2 capital for the purposes of Bank of England capital adequacy regulations.

The maximum amount of the new HSBC Holdings bonds to be issued will be approximately £448 million. The bonds will be redeemed on the date which falls 10 years after the date which is 21 days after the date on which the Final Offer becomes or is declared unconditional in all respects and may not be redeemed prior to that date except in limited circumstances relating to changes in applicable taxation. The bonds will be unsecured and subordinated obligations of HSBC Holdings and will be constituted by a Trust Deed to be entered into between HSBC Holdings and The Law Debenture Trust Corporation p.l.c.

A summary of the terms and conditions of the new HSBC Holdings bonds and an outline of their taxation treatment are set out in Part III of the Supplementary Listing Particulars and in paragraph 4 of Part XI of the Listing Particulars.

6.

(a)

Financial effects of acceptance of the Final Offer

Capital value

The following table shows, for illustrative purposes only and on the bases set out below, the financial effects of acceptance of the Final Offer and the Cash Election on capital value for a holder of 100 Midland shares if the Final Offer becomes or is declared unconditional in all

respects:

Market value of 120 new HSBC Holdings shares (note (i))

Estimated value of £65 nominal new HSBC Holdings bonds (note (ii)) or cash under the Cash Election

£

383.72

65.00

Value of the Final Offer

448.72

Market value of 100 Midland shares (note (iii))

253.00

Increase

195.72

This represents an increase of

77.4%

Notes:

(i) The market value of the existing HSBC Holdings shares, based on the middle market quotation of HK$45.375, as derived from the London Stock Exchange Daily Official List on 8 June 1992, the latest practicable date prior to the printing of this document is 319.77p at the current exchange rate. Although prices for HSBC Holdings shares may vary from time to time, reflecting different market conditions and the different dealing and settlement practices in London and Hong Kong, the new HSBC Holdings shares will rank pari passu in all respects and will have identical rights with the existing HSBC Holdings shares. Consequently, in advance of dealings in the new HSBC Holdings shares commencing on the London Stock Exchange and the Hong Kong Stock Exchange, Schroders, financial advisers to HSBC Holdings, and Cazenove & Co., brokers to Midland, are of the opinion that a reasonable estimate of the value of the new HSBC Holdings shares, if they were listed, would be approximately equal to the market value of the existing HSBC Holdings shares.

(ii) The estimated value of the new HSBC Holdings bonds is based upon the estimate referred to in paragraph 2 of this letter. The terms and conditions of the new HSBC Holdings bonds are summarised in Part III of the Supplementary Listing Particulars.

(iii) The market value of the Midland shares is based on the middle market quotation of 253p ex-dividend per Midland share, as derived from the London Stock Exchange Daily Official List on 16 March 1992, the day prior to the announcement of a possible offer by HSBC Holdings for Midland.

(iv) The middle market quotation for a Midland share, as derived from the London Stock Exchange Daily Official List on 8 June 1992, the latest practicable date prior to the printing of this document, was 420p per share. Based on this price, the Final Offer would represent an increase in capital value of 6.8 per cent.

(v) No account has been taken of any potential liability to taxation or the treatment of fractions.

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