The buy-back, which will reduce the number of ordinary shares oustanding by 5 per cent, takes the form of a bonus issue of new special dividend shares, paying 750p each over three years. This is worth about 37.5p per existing Reuters share. The complicated structure was linked to tax minimalisation, Reuters insiders said yesterday.
Registered shareholders on 8 October will be entitled to one new share and 19 new ordinary shares for every 20 shares they hold. The cashback scheme will require the approval of shareholders at an extraordinary general meeting scheduled for 9 October.
The extent of the move surprised analysts, who had been signalling a share repurchase worth perhaps pounds 300m. The shares jumped 14p yesterday to close at 764p.
Reuters last rewarded investors in 1993 through a controversial share repurchase scheme that put pounds 324m into the pockets of shareholders. Tax- exempt institutions were able to claim tax credits, at a considerable cost to the Inland Revenue.
Robert Rowley, finance director, said the new scheme was created once it became clear that the Inland Revenue would not allow a repeat of the 1993 buyback. "We had to go back and rethink the issue," he said.
He added that the approach, while complicated, was necessary if all shareholders, including US residents, were to be treated equally.
The Inland Revenue has not pre-approved the scheme, and indeed is reserving the right to apply anti-avoidance measures if it believes the dividend qualifies as "abnormal". However, tax specialists consulted by Reuters said shareholders ought to be able to show they hold the special dividend shares for bona fide commercial reasons and not largely in order to obtain a tax advantage.
Spinning cash back to shareholders has become popular in the US and the UK, and has led both tax jurisdictions to tighten the rules. Mr Rowley said it was much easier to reward shareholders in this way than to "continually answer questions from shareholders and analysts about what we were going to do with the money".
Reuters has been acquisitive in recent years, and its huge cash position - pounds 850m and no debt - made it a favourite candidate for launching a mega- bid. But the company has routinely said it would not acquire companies outside its main areas of competence.
Key to Reuters' phenomenal growth has been its core financial information products, most recently the series 3000 display screens for the use of financial professionals. It dominates the market for foreign exchange information, and has seen off competitors such as Bloomberg. It is also poised to take advantage of growing interest in emerging markets.
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