Small shareholders attack Hilton over £4.2bn special dividend

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The Independent Online

Small shareholders in Hilton have accused the company of ignoring their interests after it announced the payment of a special dividend of £4.2bn, landing them with hefty tax bills.

The group starts trading as Ladbrokes today after the sale of its hotels division to its namesake Hilton Hotels Corporation for £3.3bn, which turned it into a pure betting business. It unveiled a 10 per cent rise in annual pre-tax profits to £413.9bn yesterday and announced it had won a consultancy role in the launch of China's first sports lottery pool betting shops.

The company said it would return 240p a share, the biggest special dividend in its 120-year history. But it went against the wishes of small investors who had called for a tax-free return of cash through the issue of B shares.

The UK Shareholders Association, which represents more than 1,000 private investors, slammed Hilton's decision. Alan Perryman, a UKSA director and Hilton shareholder, said: "This seems to be yet another example where the interests of private shareholders, as opposed to those of institutional investors, have been ignored."

Roger Lawson, UKSA's communications director, said: "Private shareholders will be taxed on capital value as if it was income. Why the company can't do the job properly is beyond me."

The problem with the payment of a special dividend is that it will be taxed as income at rates of up to 40 per cent. The advantage of B shares is that they would be treated as an asset when redeemed liable to capital gains tax, which could be offset against an individual's annual allowance of £8,500.

The company's new finance director, Rosemary Thorne, who joined from Bradford & Bingley, defended the special dividend by pointing to its size. She argued that HM Revenue & Customs would not have allowed such a sizeable return of cash to be structured as B shares. "Don't you think HMRC won't want to get their hands on that?" she said. Nonetheless, she suggested private investors consult their financial advisers for ways of getting around the tax issue.

Mike Warburton, an accountant at Grant Thornton, said: "It is a great pity that the directors of these companies do not consider the position of their smaller shareholders ." He suggested higher rate tax payers should consider gifting their shares to their spouse if they are only basic rate tax payers. The spouse would therefore not pay tax because there is a 10 per cent tax credit on the dividend.

Chris Bell, the chief executive of the 2,583-strong Ladbrokes chain who has taken control of the group, believes there is room for another 200 betting shops in the UK. He was confident about the future, with the World Cup "promising to be the biggest betting event ever".

Yet analysts at Morgan Stanley noted that Ladbrokes' underlying performance was poor, with gross win per machine down on last year, operating costs up and a loss in telephone betting. A decision on whether to enter the US, where the legal status of online gaming is ambiguous, will not come before the summer.