View
1
Download
0
Category
Preview:
Citation preview
Creating and Releasing Shareholder ValueTim Morris, Michael Bell & Jonathan King 20 May 2010
osborneclarke.com
1
Introduction
• Welcome
• Market trends
• Methods of unlocking shareholder value
• Carphone Warehouse demerger – a company perspective
• Carphone Warehouse demerger – the lawyers' perspective
• OC survey – the results
osborneclarke.com
2
Market Trends
• Paradigm shift in deal cycle – dearth of corporate buyers, subdued private equity and availability of debt finance have all contributed
• Focus now on delivering shareholder value through alternative means to M&A
• Recent demergers of Carphone Warehouse, Cable & Wireless and Liberty International - just the beginning?
Methods of unlocking shareholder value
osborneclarke.com
4
Methods of unlocking shareholder value
1. Common methods
– Special dividend
– Share buy back
– B share scheme
– Demerger
2. Drivers
– Anatomy of share register
– Reserves/free cash
– Tax
osborneclarke.com
5
Methods of unlocking shareholder value
Special Dividends
1. Suited for companies with institutional shareholders
2. UK corporate shareholders will generally receive dividends tax free
3. Individual shareholders
osborneclarke.com
6
Methods of unlocking shareholder value
Share buy back
1. On-market/off-market – increases EPS
2. May be held in treasury
3. Chapter 12 – tender offer required if >15% of issued share capital. Otherwise, price capped at 5% above average 5 day market value
4. Tax
osborneclarke.com
7
Methods of unlocking shareholder value
B Share Scheme
1. Issue of shares out of capital
2. Use of share premium account or other share capital for the issue of shares
3. Combined with a special dividend?
4. Tax treatment and HMRC treatment
osborneclarke.com
8
Methods of unlocking shareholder value
Demerger1. Why demerge?
– Unlock underlying value (Cadbury, GUS)– Independence for distinct businesses
(Carphone, Anglo American, Avanti)– Prelude to a sale (Nature's Way)
2. Demerger structures– Direct dividend– "Three cornered" demerger– Section 110 liquidation scheme– "Three cornered" reduction of capital
osborneclarke.com
9
Methods of unlocking shareholder value
• Carphone pre-March structure
Shareholders
CPW PLC
TelcoDisco
Carphone Warehouse Demerger A company perspective
osborneclarke.com
11
Carphone Warehouse Demerger A company perspective
• "A nice problem to have…"
• >£1bn reserves following Best Buy transaction
• A fast growing broadband/telecoms business
• Significant shareholders
• Depressed share price – not reflective of the sum of parts
• Solution
• Demerger of telecoms business
• Return of capital
• Why not both?
osborneclarke.com
12
Carphone Warehouse Demerger A company perspective
• Early restructuring
• Change of control
• Software providers/other suppliers – think ahead
• UKLA issues
• Financial reporting
• Senior management
• Share schemes
Methods of unlocking shareholder value
osborneclarke.com
14
Methods of unlocking shareholder value
1. Direct dividend
– Simplest structure (Avanti)
– Parent pays a dividend in specie of subsidiary shares
– Distributable reserves equivalent to book value of demerged company
2. Advantages
– Simplicity
3. Disadvantages
– Need for distributable reserves
– Potential charge to corporation tax
osborneclarke.com
15
Methods of unlocking shareholder value
1. "Three cornered" demerger– Variation on direct dividend demerger– Parent declares dividend satisfied by the transfer of the demerged
entity to Newco– Newco issues new shares to parent shareholders
2. Advantages– Potential corporation tax relief if scheme of reconstruction– Can be used to demerge a trading business– SSE availability
3. Disadvantages– Need for distributable reserves
osborneclarke.com
16
Methods of unlocking shareholder value
Three Cornered Demerger• Insert New PLC 1. Statutory demerger to Telco Holdco, which
issues shares to the shareholder of New PLC 1 as part of the demerger
Shareholders
Telco Holdco
CPW PLC
Telco
Shareholders
New PLC 1
Disco
Shareholders
New PLC 1
DiscoCPW PLC
Telco
osborneclarke.com
17
Methods of unlocking shareholder value
1. Section 110 liquidation scheme– Parent liquidated and assets transferred by liquidator to two or more
newcos (Toni & Guy)– Liquidator distributes newco shares to parent shareholders in satisfaction
of rights on a winding up2. Advantages
– May be appropriate if dividend methods are impractical or tax reliefs unobtainable
– May be used in combination with a scheme of arrangement3. Disadvantages
– Statutory procedures for dissenting shareholders/creditors to object– Potentially more complicated from a commercial perspective
osborneclarke.com
18
Methods of unlocking shareholder value
Liquidation Scheme
Shareholders
Liquidation Newco
Disco
Disco Holdco Telco Holdco
CPW PLC
Telco
Issues: A Shares
Issues: Ord shares
B shares
Transfer Disco shares
Transfer CPW PLC shares
osborneclarke.com
19
Methods of unlocking shareholder value
Alternative Route • Demerger using different share classes
Shareholders
Newco A
Newco
CPW PLC
Telco
Newco B
Disco
100%100%
B sharesA shares75% ordinary share capital 51% voting control
100% 50%
osborneclarke.com
20
Methods of unlocking shareholder value
1. "Three cornered" reduction of capital– Newco interposed above parent by way of a Court sanctioned scheme of
arrangement (Carphone Warehouse)– Reduction of capital necessary to transfer demerged business to second newco in
consideration for it issuing new shares to parent shareholders2. Advantages
– Useful if insufficient distributable reserves and/or liquidation scheme is not appropriate
– Should qualify as a scheme of reconstruction– Repayment of capital
3. Disadvantages– Perceived as more complicated structure– No relief from any de-grouping charges– Court sanction/approvals required
osborneclarke.com
21
Methods of unlocking shareholder value
1. Restructure of the New Carphone Group prior to the Demerger
2. Reduction of capital and Demerger
Disco
CPW PLC
Issue
Transfer
Cancellation of B shares
CPW Brand NewcoDisco CPW PLC CPW Brand
Newco
CPW Brands Ltd
New Carphone
Shareholders
New Carphone
Shareholders TalkTalk
TelcoTelco Telco
TalkTalk Brand
Carphone Brand
TalkTalk Brand
Carphone Brand
Three cornered reduction of capital
osborneclarke.com
22
Methods of unlocking shareholder value
Liquidation Demerger
Capital Reduction
Share classes
Statutory Demerger
Shareholder issues
Level of shareholder consent required? 75% 75% 75% 75% Ability of shareholders to dissent? Y N N N Timing and complexity Y N N N Distribution risk for shareholders? N Y N N Chargeable payments and similar avoidance issues? N N N Y
Corporate Issues
Degrouping charges Y Y N N Ease of obtaining clearances on demerger structure Y Y N Y Stamp duty costs / complexity N N Y N
Carphone Warehouse The lawyers' perspective
osborneclarke.com
24
Carphone Warehouse The lawyers' perspective
1. Restructure of the New Carphone Group prior to the Demerger
2. Reduction of capital and Demerger
Disco
CPW PLC
Issue
Transfer
Cancellation of B shares
CPW Brand NewcoDisco CPW PLC CPW Brand
Newco
CPW Brands Ltd
New Carphone
Shareholders
New Carphone
Shareholders TalkTalk
TelcoTelco Telco
TalkTalk Brand
Carphone Brand
TalkTalk Brand
Carphone Brand
Three cornered reduction of capital
osborneclarke.com
25
Carphone Warehouse The lawyers' perspective
1. Structure – Three cornered reduction of capital– "New Carphone" established as holding company of Carphone by way of
a scheme of arrangement under Part 26 of the Companies Act 2006– New Carphone incorporated with two classes of ordinary share capital,
each representing the value of the retail/distribution business and the TalkTalk business respectively following the scheme
– Pre-demerger reorganisation following the scheme becoming effective– Reduction of capital accompanied by transfer of TalkTalk business to
TalkTalk Telecom plc– Capitalisation of merger reserve and further reductions of share premium
account to create distributable reserves in both listed companies2. Invest time upfront in structuring
osborneclarke.com
26
Carphone Warehouse The lawyers' perspective
• Listing issues– Eligibility – structure of "New Carphone" necessitated a Standard Listing– Voluntary adoption of Premium Listing principles but no FTSE inclusion– Documentation
• Scheme document/class 1 circular and two prospectuses – 300 others!• Financial information• Risk factors – impact on working capital statements (see List! 24)
– Project management/logistical challenges• Choose your advisers carefully….
OC Survey The results
Questions
osborneclarke.com
29
Contacts
Jonathan KingPartnerBusiness TransactionsT +44 (0) 20 7015 7046M +44 (0) 7730 731 140jonathan.king@osborneclarke.com
Michael BellPartnerTaxT +44 (0) 117 917 4312M +44 (0) 7730 731 090michael.bell@osborneclarke.com
Adrian BottPartnerBusiness TransactionsT +44 (0) 20 7105 7458M +44 (0) 7887733737adrian.bott@osborneclarke.com
[insert photo here]Height = 5.39cmWidth = 5.81cm
Thank you
Creating and Releasing Shareholder ValueTim Morris, Michael Bell & Jonathan King 20 May 2010
Recommended