Tomkins, the international engineering group, is spending £366m to buy out half the shareholding in the company held by the Gates family in the United States.
The move will reduce the Gates family's holding in Tomkins on a fully diluted basis from 22.5 per cent to 11.7 per cent. The reduction is being achieved through the early redemption of preference shares held by the Gates family and convertible into ordinary Tomkins shares at a price of about 310p.
A spokesman said the move would add about £4m a year to Tomkins' profits because the interest charge it will pay on the debt used to finance the early redemption was lower than the coupon payable on the preference shares.
The Gates shareholding came about after Tomkins' $1.1bn (£660m) acquisition of the family-owned automotive components business in 1996. The takeover was funded entirely with preference shares.
The preference shares were issued at $50 but Tomkins is redeeming them early at a reduced price of $48.50. The shares are convertible at a rate of 9.77 ordinary shares for each preference share, meaning that Tomkins is paying the equivalent of 300p a share to redeem the Gates holding. Tomkins shares closed 1.25p lower at 225.75p.
David Newlands, the chairman of Tomkins, said: "This is a positive move for Tomkins. It will simplify our capital structure, effectively reduce the fully diluted number of shares outstanding and will enable refinancing at attractive rates."
The remaining 11.5 per cent Gates shareholding is held in the form of perpetual preference shares which pay an annual coupon of 4.34 per cent. Tomkins can buy back the shares at their par value of $50 after 2006. Alternatively, the Gates family could convert them into ordinary shares if the Tomkins share price rises above 310p.Reuse content