Southern takes up Ziff scheme

The creator of an ingenious alternative to share buy-back schemes, enabling companies to hand back hundreds of million pounds to investors without falling foul of new tax rules, is thought to have "sold" his idea in principle to at least two more large businesses.

As news of the two possible forthcoming cash windfalls emerged yesterday, Southern Electric, the regional electricity supplier, announced plans to adopt the scheme, handing back pounds 156m to shareholders.

Southern is the second privatised utility to take up the advice of City of London investment bankers SBC Warburg, which was replaced as its broker last year. On Thursday Yorkshire Water stirred up further controversy by proposing to return pounds 145m to its investors.

The scheme was devised by Max Ziff at SBC Warburg, the investment bank, after the Government changed the tax rules on share buy-backs last October. Mr Ziff, 38, had previously advised Northern Electric during its infamous "scorched earth" defence of the takeover bid from Trafalgar House.

The two companies most interested in Mr Ziff's latest idea are not thought to be utilities. However, he confirmed he had approached other privatised utilities which have not yet carried out share buy-backs.

Shares in Southern rose 13p to 800.5p yesterday. The surge followed a 16p rise the previous day after speculation about a buy-back. The arrangement involves Southern replacing every 100 existing shares with 184 new ordinary shares and 200 "B" shares. The company will then buy back all the B shares for 30p each, giving investors 60p in cash for each existing share they hold. The capital restructuring will raise the company's gearing from around 10 per cent to some 40 per cent.

In addition, Southern pledged yesterday that its dividend would remain unchanged, forecasting a final payout to shareholders of 30.1p, or 15.05p for each of the new ordinary shares.

Ian Marchant, Southern Electric's finance director, said one big advantage was that all shareholders would benefit.

Investment column, page 23