Standard Life may oppose RTZ plan: Proposals to cut its ACT surplus may get the thumbs-down from an institutional shareholder

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STANDARD LIFE, one of Britain's largest institutional shareholders, is considering voting against RTZ's proposals to cut its advance corporation tax surplus by encouraging shareholders to accept shares instead of a cash dividend.

Standard, which has 2 per cent of RTZ, believes there was a false market in the shares because they went ex- dividend on 15 March, 11 days before the scheme was announced.

RTZ is offering shareholders a 50 per cent increase in the final dividend, provided they take it in the form of shares - which could increase its share capital by as much as 3 per cent. Investors who bought their shares after the ex-dividend date cannot share in the offer, and will find their percentage holdings diluted, while those who sold will have an unexpected windfall.

John Thomson of Standard Life said: 'We are thinking of voting against because of the false market in the shares since they went ex-dividend.'

A number of other shareholders agreed with Standard Life's objections, although they are unlikely to vote against the scheme. Some also questioned why it had been approved by the Stock Exchange, but a spokeswoman for the exchange said that there could only be a false market if the information was available to certain parties and not to others.

RTZ was the second company last week to offer an increased scrip dividend, using a scheme devised by Barclays de Zoete Wedd. But shares in BAT, which unveiled its scheme last Monday, do not go ex-dividend until today.

It is believed that RTZ would have preferred to announce the scheme before the shares went ex-dividend, but the approvals required made that impossible. A spokesman for the company said he was sorry some shareholders were unhappy but added: 'It is in the interests of all shareholders.'

Enhanced share dividends, or scrips, are designed to cut companies' tax bills by saving ACT - which is not payable on scrips but is on cash payments. RTZ calculated that it could boost earnings by up to 3p and, because no cash is paid out, cut gearing by up to 7 percentage points.

The increase in the level of the scrip alternative is designed to compensate shareholders for the fact that they cannot reclaim ACT on these dividends - a particular problem for non-taxpayers, such as pension funds.

Institutional shareholders have grudgingly accepted the two schemes proposed so far. But some institutions have been making it clear to corporate financiers that they will not support too many such schemes. 'There shouldn't be too much ingenuity in the mundane matter of paying dividends,' one said.