Melrose return of capital

Melrose Industries, an engineering company that seeks to acquire businesses it understands, improve them by a mixture of investment and changed management focus, realise the value created and then return it to shareholders. I have a holding in my income portfolio (epic code: MRO).

Today Melrose announced details of their proposed return of capital (ROC), following the sale of Bridon for £365m in October 2014.  The company will return to shareholders £200m, equivalent to 18.7p and institute a 13 for 14 Share Capital Consolidation. 

 

Shareholders will have the option of whether to receive the ROC as either income or capital; the default option is income and there will be no deferred capital option. 

 

The deferred capital option, has been used in the past, to enable capital gains to be split between two tax years.  The 2014 Autumn statement proposed that from 6 April 2015, special purpose share schemes will no longer be able to offer capital and income options - they will all be deemed to be income (taxed in the same way as dividends.  This will cause two problems in the future i) higher income tax shareholders will no longer be able to shield ROC as a capital gain, thereby using CGT allowances; ii) investors that shield their investment in an ISA and have their dividends distributed to them, will be at risk of having the ROC paid to them by their broker, in effect distributing capital from their ISA.

 

The ROC will be distributed on 16 March 2015 and the share consolidation will take place on 23 February 2015. The ex-distribution date is 20 February 2015.