Daily Telegraph: Boots merger will punish shareholders on high tax rate: “The issue echoes the row earlier this year when Shell unified its Royal Dutch Petroleum with its Shell Transport & Trading companies. A small band of Royal Dutch shareholders, who were landed with hefty tax bills, waged a war against the company until Shell backed down.”: Wednesday 26 October 2005
By Harry Wallop (Filed: 26/10/2005)
The planned merger of Boots and Alliance Unichem will penalise Boots shareholders who are higher-rate taxpayers, it has emerged.
Boots will unveil its half-year results tomorrow and will take the opportunity to again try to persuade a sceptical City that its planned merger with Alliance will create shareholder value.
However, a crucial plank of the merger will land higher-rate taxpayers with a hefty bill that will eat into their investments. Boots has 60,000 private shareholders.
One 79-year-old shareholder, whose £180,000 share holding "has been built up over my entire lifetime", has complained that he will suffer a net loss of at least £8,000. "They are disregarding their shareholders," he said. He did not want to be named.
His loss will be incurred because earlier this month Boots announced that it intended to return £1.43billion to shareholders after it sold its drugs manufacturing business. Shareholders will receive the cash via a special dividend equating to £2 net a share plus a 22.2p tax credit before the merger takes place.
A higher-rate taxpayer will be taxed at 32.5pc on the special dividend. This means that, taking into account the 10pc tax credit, the 79-year-old shareholder ends up with a £51,600 net dividend.
However, the company is accompanying the dividend with a share consolidation, which though not confirmed, is likely to be a two-for-three consolidation. This implies that a £180,000 investment would fall to £120,000. Even with the £51,600 net dividend, an investor would lose over £8,000 on the deal.
The 79-year-old is particularly upset because at the annual meeting in July chairman Sir Nigel Rudd promised any return of capital would be done on a "tax-efficient" basis.
The issue echoes the row earlier this year when Shell unified its Royal Dutch Petroleum with its Shell Transport & Trading companies. A small band of Royal Dutch shareholders, who were landed with hefty tax bills, waged a war against the company until Shell backed down.
A Boots spokesman said: "We are aware that however we return the cash there will be tax issues for shareholders." He added that Boots could not issue redeemable B shares - a common tactic of returning cash to shareholders - because it did not have a share premium account.
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