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Corporate actions

Share Consolidation and B Shares (Return of £2bn in 2002)

Overview

In 2002 Marks & Spencer underwent a capital re-organisation.  This was part of a project to return £2bn to shareholders.  Shareholders were given a new “B share”, valued at 70p, for every ordinary share they owned at the time of the re-organisation.  To make this possible the ordinary shares were consolidated at a ratio of 17 for 21, meaning that for every 21 ordinary shares held you received 17 new ordinary shares in Marks and Spencer Group plc.

The creation of B shares gave shareholders the opportunity to either redeem their entire holding of B shares at the time of creation and take the money, or to hold their B share allocation and receive dividends semi annually.  If we had simply paid an increased dividend or made a one off capital payment we may have put many of our shareholders in a position where they had been liable to  pay capital gains tax.  This could have reduced the amount of money they were able to receive.

The B shares gave the flexibility to redeem the shares twice a year, for 70p per share, allowing shareholders to manage their tax liabilities in accordance with their situation.  The value of the B shares would not have changed over the period that they were held.  At the first redemption date more than 80% of the B shares were redeemed by shareholders who chose to take the cash.

Example of how it worked

Number of shares used for example

210 ordinary shares

Closing Price of shares in Marks and Spencer plc as at 18 March 2002

£3.745

Value of shares in Marks and Spencer plc prior to the reorganisation

£786.46 (210 x £3.745)

Shares split at a ratio of 17 new shares in Marks and Spencer Group plc for every 21 shares held in Marks and Spencer plc.  B shares created and allocated on a basis of 1 new B share for every 1 share held in Marks and Spencer plc (pre reorganisation)

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After the reorganisation

Number of new ordinary shares held following the reorganisation 

170 ordinary shares (210 / 21 x 17) 

Theoretical opening price on the first day of trading (19 March 2002) of the new Marks and Spencer Group plc

£3.7615 (increase of 1.65p)

Value of shares in Marks and Spencer Group plc following the reorganisation

£639.45 (170 x £3.7615)

Number of B shares held following the reorganisation

 210 B Shares

Value of B shares in Marks and Spencer Group plc following the reorganisation

£147 (210 x 70p)

Value of new ordinary shares and new B shares combined

£786.46 (£639.45 + £147)

Not all calculations would have been as simple as that shown above and fractional amounts would have been created. Shareholders were sent a cheque representing the value of this fractional entitlement.

Following the capital re-organisation, all old share certificates (dated pre March 2002) became invalid and new certificates were sent to all shareholders. 

Final redemption

All outstanding B shares (74,184,314) were redeemed at par value (70 pence per share) on 5 May 2006. On Redemption the B shares were cancelled and the Company requested that the Financial Services Authority removes the B Share listing from the Stock Exchange.  

The decision by the Company to redeem all outstanding B shares was consistent with the rights and restrictions attaching to the B shares contained in the circular sent to shareholders in February 2002 prior to approval at the Extraordinary General Meeting of the Company on 28 February 2002.  

Read a copy of the circular (30kb PDF)

The proceeds of the redemption

This would generally be treated in the hands of a shareholder as the proceeds of a disposal for the purposes of the UK taxation of chargeable gains. This applies even if you elected to invest the proceeds in Marks & Spencer shares or donate it to ShareGift.  

Following the Marks & Spencer capital reorganisation in March 2002, the base cost for CGT purposes was 372.35p (81.43%) for each ordinary share and 68.75p (18.57%) for each B share.