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Severn Trent’s de-merger of its waste services subsidiary, Biffa, in the second half of 2006 was recommended to shareholders on the grounds that the two companies had few ‘operational synergies’ and that the de-merger would be an opportunity to return value to Severn Trent shareholders (who benefited from a return of capital and the receipt of shares in Biffa).

On 1st October 2006 a shareholding of 375 Severn Trent shares would have been worth £5,010. They would have received:

£618.75 as a special dividend (the return of capital)

375 new shares in Biffa (one for each Severn Trent share held)

250 new shares in Severn Trent (two for each three shares formerly held)

A year later (1st October 2007) the 375 Biffa shares were worth £833 and the 250 Severn Trent shares were worth £3,525, making a total of £4,408. If one adds back the special dividend the shareholder is slightly ahead.

But…!

For a higher rate taxpayer there would be some £155 in extra tax to pay on the special dividend.