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  1. 1. DefinitionThe act of splitting off a part of an existing company tobecome a new company, which operates completelyseparate from the original company. Shareholders of theoriginal company are usually given anequivalent stake of ownership in the new company. Ademerger is often done to help each ofthe segments operatemore smoothly, as they can nowfocus on a more specific task. opposite of merger.
  2. 2. The benefits of demergerWhy we are considering demerger nowAs a property company we set out to take key investment decisions froma position of strength .We restructured to create Retail, London andOutsourcing (now Trillium) in 2004 because it was rightfor the Company. The three businesses have grown and now have thesize and strength to stand alone.The demerger plan recognises that these businesses have differentfinancial characteristics, and that specialisation will help each business toraise capital. We also believe that greater recognition will be given tomajor successes achieved within a specialised business, rather thanwithin a more broadly based Group.
  3. 3. The history of the demerger processThe potential benefits of demerger were fi rst raised within theCompany in autumn 2005 following the successful creation of thethree business units in 2004. The review process started long beforecurrent market conditions were evident and we believe demerger willbe delivering value for shareholders when the currentmarket conditions are regarded as history. The Board has a strong track record on bold decisions. In recentyears we acquired Trillium, exited the industrial sector through theproperty swap with SEGRO and boosted our development pipelineahead of the current cycle. These decisive actions have provedsuccessful. Demerger is the latest bold decision in the ongoingevolution of the Company.
  4. 4. Businesses benefit from specialisationHistoric data shows that in the UK and US specialist companies haveproduced higher shareholder returns over the last 10 years. Webelieve a balance sheet tailored to the respective sector cycles has thepotential to improve return on shareholders’ equity by a materialamount. With a bespoke financial structure our London and Retailportfolios could be valued more easily and could raise capital moreeasily. We believe they will also be better positioned to access new flows of capital into the global listed property sector.
  5. 5. Our progress so farInitial preparatory work for demerger is well advanced, and this includes theappointment of the leadership teams for each business. In terms of ChiefExecutives, Francis Salway will run the Retail business, Mike Hussey willcontinue to run London and Ian Ellis will continue to run Trillium. Sir Christopher Bland has been appointed Chairman of Trillium in the runup to its demerger and subsequently. His recent roles include Chairman ofBT and Chairman of the Board of Governors at the BBC. Rick Haythornthwaite has been appointed as Chairman of the Retailbusiness following demerger. He is currently Chairman of Mastercard Inc,Chairman of the Risk and Regulation Advisory Council and partner atStar Capital Partners Ltd. His previous roles include Chief Executive ofBlue Circle Industries and Invensys and Non-executive Director of ICI. PaulMyners will assume the role of Chairman of the London business atdemerger.
  6. 6. The cost of demergerThere will be the additional cost of running three corporate entities,including three boards, and our estimate is that this will be around £15mper annum, with the businesses able to manage overall costs down onceseparated. In addition, the cost of finance for the three businesses is expected toincrease slightly, but we believe the credit quality of the three individualportfolios will keep this increase to moderate levels. There will also be theone-off costs of undertaking the transaction – including legal, accountancyand adviser fees – and we expect these to be in line with similartransactions. While we will keep costs under close scrutiny throughout the process, webelieve the long-term benefits for shareholders will significantly outweighthe initial costs of demerger.
  7. 7. A clear step forwardDemerger represents a clear step forward for this Company and is inkeeping with our heritage of taking key decisions early. In our view, theindependent London and Retail businesses will – along with Trillium –continue to lead their markets, with their proven management teamssupported by tailored fi nancial structures.
  8. 8. CTM17250 - Distributions: demergers: introductionICTA88/S20, ICTA88/S213 (1) - (2), & ICTA88/S238 (1)Sometimes businesses grouped together under a single company umbrella could be runmore effectively if they were allowed to pursue their own separate ways underindependent management and ownership.The tax system inhibits the splitting up of businesses in this way as such a split willnormally involve a distribution under ICTA88/S209.The demerger provisions in ICTA88/S213 to ICTA88/S218 aim to make it easier todivide and put into separate corporate ownership, the trading activities of a company orgroup of companies, but without any new controlling owner being involved. They do thisby removing the distribution charge in appropriate circumstances, and making thedistribution an exempt distribution. ICTA88/S213 (2) provides that the legislationapplying to distributions of a company shall not apply to exempt distributions. Thelegislation also provides for some CG consequences. Demergers relate to trading activities only. They can involve all sizes and types of company. Companies that make use of the demerger provisions range from small private companies to some of the UKs largest public companies.
  9. 9. The broad effect of the legislation for the company making theexempt distribution, is that:there is still a CG disposal, to which TCGA92/S139 may apply,the provisions in TCGA92/S178 and S179 (anti-avoidanceprovisions relating to the transfer of assets from othercompanies in a group to a company that then leaves the group)do not apply to a company leaving a group solely as a result ofthe demerger,for accounting periods ending before 6 April 1999 no ACT had tobe accounted for on the distribution. For accounting periodsending on or after 6 April 1999 an exempt distribution is not adistribution for shadow ACT purposes.The broad effects of the legislation forthe shareholder receiving the exempt distribution, are that thedistribution will: