Standard Life again returning capital to shareholders

Company to conduct share consolidation alongside return of £1.75 billion

The All Blacks perform the haka in Eden Park, Auckland, in 2017. Standard Life’s return of capital to shareholders will be broken into two sums – £1 billion and £750 million. Photograph: Peter Meecham/ Inpho/Photosport

The All Blacks perform the haka in Eden Park, Auckland, in 2017. Standard Life’s return of capital to shareholders will be broken into two sums – £1 billion and £750 million. Photograph: Peter Meecham/ Inpho/Photosport

 

I have some shares in Standard Life and I recently received an email from them telling me that they propose to sell their UK and European insurance business. They also indicate that they propose a return of £1.75 billion to shareholders. They included a link to a 133-page circular letter “explaining” the process.

I think this is somewhat similar to what Vodafone did when they sold their holding in Verizon but I’m confused and I hope you can explain in plain English what is proposed and how it will affect shareholders.

Mr S.W., Wicklow

Never mind Vodafone, Standard Life has form in this area. It is only three years ago that it went through a rather fraught return of capital to Irish shareholders after offloading its Canadian businesses.

We can only hope that some of the lessons from that experience have been learned at the group’s Edinburgh headquarters.

So what’s happening this time? Well, as you say, the group is selling its UK and Irish insurance business – Standard Life Assurance Limited – to a company called Phoenix for about £3.28 billion

This is subject to a number of conditions, including approval by a general meeting of shareholders next Monday – June 25th.

As you say, the company has sent extensive correspondence to shareholders outlining its proposal and the reasons why it believes it to be a good deal. Under the name of chairman, Sir Gerry Grimstone, it also explains that, assuming the deal proceeds, it intends to return to shareholders a total of £1.75 billion.

This will be done in two separate exercises, which are explained best in a Q&A format on pages 25-27 of that Standard Life email.

The return of capital will be broken into two sums – £1 billion and £750 million.

Under the first bit, the company will issue new B shares to shareholders, which the company will then pay you for. This will happen shortly after the Phoenix deal is completed which is expected to be in the third quarter of this year.

It is not yet clear exactly how much you would get – and in any case, you don’t divulge your current shareholding – but the company says it expects it will be a minimum of 33.4 pence sterling for every Standard Life share you currently own.

Share consolidation

But at the same time, the company will also conduct a share consolidation where you will receive 10 new Standard Life shares for every 11 shares you currently own.

The outcome – the value of your new shareholding plus the amount the company pays for your B share plus any fractional cash entitlement thrown up by the consolidation – should mean that the cash value of your remaining shareholding plus the cash your receive should be the same as the value of your current shareholding just before the exercise is completed.

So effectively, you are not getting a windfall here: it is simply that some of your shareholding is being bought by the company. And that brings us to the second part of the process. The remaining £750 million will be used to buyback shares in the market from those investors who wish to sell.

In tax terms, the company says that proceeds for the redemption of the B shares for Irish investors “should generally be treated as capital receipt for tax purposes” – ie subject to capital gains tax.

How that will affect you depends on the number of shares you own and the price at which you bought them.

Please send your queries to Dominic Coyle, Q&A, The Irish Times, 24-28 Tara Street, Dublin 2, or email dcoyle@irishtimes.com. This column is a reader service and is not intended to replace professional advice

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