Reuters Holding Plc, the global news agency and financial information group, is so short of investment ideas that it will return 1.5bn pounds of surplus cash to its shareholders. The company believes that its existing business is already sufficiently broad and demanding to generate good growth, and it doesn’t want to lose its business focus by branching out of its core business. Reuters, which has had in excess of 1.1bn pounds of cash on its books since June, wants to gear up its capital structure and has revealed a scheme to return excess equity finance to its shareholders while replacing a fifth of it with cheaper debt finance. Existing shareholders are to receive 13 shares in a new Reuters holding company plus 13.60 pounds in cash for every 15 shares originally held. The cash payment, which totals 1.5bn pounds, reflects the market value of the two missing shares at Wednesday’s closing price. It will be funded using existing cash together with 300m pounds of debt. The structure of the deal is clever, but also straightforward. A newly formed company, Reuters Group Plc is making a cash and stock offer for the old Reuters Holdings Plc. The company is effectively mounting a take-over bid for itself. Since the deal is structured as a take-over, the cash distribution to shareholders is not treated as a dividend payment, and Reuters avoids the nightmare of incurring 3.75bn pounds in Advance Corporation Tax which it may never be able to recover. ACT is set to be abolished anyway in 1999 and Reuters’ advisors on the deal, SBC Warburg Dillon Read, implied that the UK tax authorities were giving clearance for the innovative Reuters scheme with this in mind. The one off costs of the cash distribution, including the costs of repatriating liquid funds into the UK from abroad, will amount to 30m pounds. The reorganization is expected to become effective in February 1998.
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