Severn Trent, the country's biggest quoted water company, is to hand back £576m to shareholders when the demerger of its Biffa waste business takes place next month.
The return of capital will be achieved by a 165p special dividend and will be accompanied by a share consolidation which will see shareholders offered two shares for every three they hold. They will also receive one share in Biffa for every Severn Trent share.
Analysts estimate that Biffa, the UK's biggest waste company by turnover, will have a market capitalisation of £800m-£900m and an enterprise value of £1.2bn-£1.3bn, including the £401m of debt that will be loaded into the business on demerger. Severn Trent shares rose by 1 per cent.
Severn Trent will partly finance the special dividend by taking on extra debt in its core regulated water business. After the payment, Severn Trent's gearing will rise to 60 per cent, putting it at the top end of the range that the water regulator Ofwat is comfortable with.
Biffa will be overtaken as the UK's biggest waste collector when the French company, Veolia, completes the takeover of Cleanaway from Brambles Industries. But its chief executive, Martin Bettington, said Biffa planned to continuing growing through selective and complementary "bolt-on" acquisitions.
Biffa is one of the few "cradle to grave" waste companies, not only collecting it and recycling it but also disposing of waste in landfill sites. The company's collection business has 1,500 vehicles and 86 depots, while the landfill division is one of the top three in the UK.
Mr Bettington said Biffa was well equipped to deal with the growing environmental demands on the waste industry and well placed to grow despite increasing pressure on manufacturers and supermarkets to cut the amount of packaging they produce. He said Biffa's size in waste collection left it well placed to win new business in what was a highly fragmented market, while its special waste division would benefit from the move to recycle more waste.Reuse content