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Spin-offs & De-mergers

UK Spin-offs & De-mergers
A de-merger, with is also known as a Spin-off, is a corporate restructuring in which one part of a company is spun off as a new completely company, often with a quoted status of its own. Examples in the UK include Zeneca which was spun out of ICI.

A de-merger can be full or partial and is usually carried out by distributing shares in the business to be spun off, to shareholders of the company carrying out the de-merger, in proportion to their shareholding in the original company. When there is a partial de-merger, the parent company retains a stake, which is sometimes a majority stake in the de-merged business.

Managing De-mergers using timetotrade
To enter a share reorganisation, follow the general instructions defined on the Share Reorganisation page. This section discusses how to enter specific details relating to De-mergers. Spin-offs & De-mergers should be entered into using the Share Reorganisation wizard, as a 'demerger'.

When managing de-mergers you are typically told the ratio of old to new shares, or the number of news share received as a result of a de-merger, the value for both classes of shares on the date of the De-merger, as this is required for apportioning cost, plus any cash payment received.

You can use timetotrade to either enter the ratio of old to new shares such as a 9:11 de-merger and any cash received. Remember to enter the symbol associated with the new class of share in the symbol text box. In the following example TSCO has de-merged company ABC, whereby on the day of the de-merger, one TSCO share is replaced with one TSCO share which are valued at 200p (£2.00). New (de-merged) shares in ABC are issued using a ratio of 10:13 for every TSCO share held before the reorganisation date. The value of the ABC shares on the day of the de-merger was 100p (£1.00):

Demerger 1-4.png

Alternatively you can enter the number of shares owned / received by entering a positive number (e.g. "300") or a negative number (e.g. "-300") into the shares issued text box as illustrated:

Demerger 1-5.png

When entering any payments for cash received or the values of the shares if multiple classes of shares are issued, the values entered must be in Pounds, Euro, Dollars etc and not in pence for example for UK stocks.

Typically Fractional Shares are not issued when reorganising UK companies. If fractional shares are not received leave the default 'Fractional Shares' drop down menu at 'No' as in "No fractional shares were received". Alternatively if you did receive fractional shares, change the fractional shares drop down menu to 'Yes'.

De-merger Examples

GKN plc de-merger example
On 7 August 2001, shareholders received one Ordinary Share in Brambles Industries plc for each GKN plc Ordinary Share held. GKN plc was incorporated on 30 March 2001 with the name Mistycove plc. On 18 May 2001 it changed its name to New GKN plc and on 1 August 2001 to GKN plc. Dealings in GKN plc Ordinary Shares on the London Stock Exchange following the demerger of the Industrial Services activities commenced on 7 August 2001.

Woolworths Group plc de-merger
On 28 August 2001, Kingfisher demerged its general merchandise business and new Woolworths Group plc shares were then separately listed on the London Stock Exchange. Kingfisher shareholders received one Woolworths Group ordinary share of 12.5 pence each for every Kingfisher share held. On the same date, the Kingfisher ordinary shares of 12.5 pence each were consolidated into ordinary shares of 13.75 pence each. Shareholders received 10 consolidated Kingfisher shares of 13.75 pence each for every 11 Kingfisher ordinary shares of 12.5 pence each.

The aggregate base cost for the purposes of taxation of chargeable gains of the Kingfisher ordinary shares and the Woolworths Group shares immediately after the demerger and share consolidation should be the same as the base cost of the Kingfisher ordinary shares immediately before the demerger. The base cost should be apportioned between the Kingfisher ordinary shares and the Woolworth Group shares by reference to their respective market values on the first day on which market values or prices are quoted or published for such shares. The precise basis on which the apportionment should be done will depend on a number of factors, including the type of share pool or holding the Kingfisher shares comprised for the purposes of the capital gains tax legislation.

The market value is found by taking the lower of:

a) the lower of the two prices shown as the quotations for the shares on the London Stock Exchange Daily Official List plus one quarter of the difference between those two figures, and
b) the halfway point between the day high and the day low.

From the London Stock Exchange Daily Official List for 28 August 2001:

Demerger 1-1.png

Simplified example:

Before the demerger on 28 August 2001, a shareholder had 1,100 Kingfisher shares purchased in 1997, having an aggregate base cost of £5,000.00. Following the demerger and the share consolidation, the shareholder has 1,000 Kingfisher shares and 1,100 Woolworths Group shares. The base cost of the 1,000 consolidated Kingfisher shares would be:

Demerger 1-2.png

Note: Proceeds from the sale of any fractional entitlement arising from the share consolidation should also be deducted in order to determine the base cost.

Demerger 1-3.png


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