Stamp duty on takeovers

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We have seen an increasing number of public company takeovers structured as schemes of arrangement. A key advantage of using schemes has been that it is possible to structure the takeover in a way that avoids stamp duty. Whereas stamp duty is payable on the transfer of shares in UK companies (though not AIM companies) at a rate of 0.5 per cent, the issue of new shares is not subject to stamp duty. It has been possible to save stamp duty on a public company takeover by reducing the target company’s share capital and issuing new shares to the bidder under a court-approved scheme.

The Chancellor announced in his Autumn Statement the Government’s intention to stop this practice. There isn’t a specific date for this as yet but the Government has said it will be effective from “early 2015”.

This does not mean that schemes will not continue to have some advantages over the more traditional “offer” route as a means of structuring a public company takeover. In particular, schemes become binding on all shareholders once approved by 75 per cent of them; with an offer, the bidder must obtain 90 per cent acceptances before it can begin the process of mopping up the remaining minority. Even so, the stamp duty saving has in many cases been a major consideration in using the scheme route.

Walker Morris have completed two takeovers in the past few months which were structured as schemes of arrangement and which involved a capital reduction and the issue of shares to the bidder – which will soon not carry the stamp duty saving. We may well see a return therefore to the more “traditional” offer route as a way of effecting public company takeovers in 2015. If you have any such transactions in the pipeline that may now need restructuring, please contact us to discuss your options.