Relating to the £1.5 billion return to shareholders
What changes are you proposing?
United Utilities Group will be put in place as the new listed holding company of United Utilities. This will allow United Utilities to implement the Return of Capital of approximately £1.5 billion to Shareholders. Upon the Scheme becoming effective, United Utilities Group will own all the shares in the current listed company, United Utilities, and you will hold United Utilities Group Ordinary Shares and B Shares in United Utilities Group in place of your United Utilities Shares.
The introduction of United Utilities Group as the holding company of United Utilities will be followed by a reduction of share capital in United Utilities Group by reducing the nominal value of each United Utilities Group Ordinary Share. This reduction will create distributable reserves to enable the Return of Capital to take place and for future dividends.
In addition, a merger reserve will be created upon the Scheme becoming effective which, in order to create further distributable reserves in United Utilities Group, will be capitalised into Class A Shares, which will be cancelled as part of the United Utilities Group Reduction of Capital.
For further details, please see paragraph 1 of the section marked "Summary" on page 8 of the Circular.
Why is United Utilities returning this cash?
In December 2007, United Utilities successfully completed the disposal of United Utilities Electricity, enabling the Group to focus on its much larger water asset base. It was the Board's stated intention that, following the disposal, United Utilities would return the net equity proceeds of the sale to Shareholders. As announced on 29 November 2007, United Utilities is now proposing to return approximately £1.5 billion to Shareholders, equivalent to 170 pence per United Utilities Share. The Return of Capital will be comprised of approximately £1.050 billion of the net equity proceeds from the sale of United Utilities Electricity and a further £450 million from the Group's pre-existing resources. The Return of Capital will help create a more efficient capital structure for the Group.
Why are you implementing the Proposals by way of the Scheme?
The Scheme is a formal procedure under the Companies Acts and this procedure is commonly used to carry out corporate reorganisations involving the introduction of a new holding company. The Scheme requires the approval of Shareholders and sanction by the Court. If the relevant approvals are obtained, all Shareholders will be bound by the Scheme regardless of whether or how they voted.
How is United Utilities returning this cash?
The Return of Capital is being made using a B share structure, which will give Shareholders (other than Restricted Overseas Shareholders) a choice as to when and in what form they receive their proceeds from the Return of Capital.
What will happen to my United Utilities shares?
The reorganisation will be carried out by a formal procedure, known as a scheme of arrangement, under the Companies Acts. The key features of the Scheme are as follows:
- the share capital of United Utilities will be reduced by cancelling and extinguishing all of the Scheme Shares;
- the share capital of United Utilities will be increased to its former amount and the reserve arising on the reduction of capital will be applied in paying up and issuing the New United Utilities Shares so that United Utilities Group will own all shares in United Utilities and accordingly United Utilities will become a subsidiary of United Utilities Group; and
- you will receive:
(i) 17 United Utilities Group Ordinary Shares for every 22 United Utilities Shares you hold at the Scheme Record Time; and
(ii) one B Share for each Existing United Utilities Share you hold at the Scheme Record Time.
Any fractional entitlements to United Utilities Group Ordinary Shares will be aggregated and sold and the net proceeds of the sale remitted to you pro rata to your entitlement.
The Scheme Record Time is expected to be 6:00 p.m. on 25 July 2008 (subject to the date on which the Court sanctions the Scheme).
What does all of this mean to me?
You will hold fewer United Utilities Group Ordinary Shares immediately after the Scheme than you hold United Utilities Shares immediately before the Scheme, due to the issue of B Shares in order to effect the Return of Capital.
You will, subject to fractional entitlements (see question 8 below), continue to own the same proportion of the ordinary share capital of the Group before and after implementation of the Scheme.
The intention is (subject to normal market movements after the date of this document) that the share price of one United Utilities Group Ordinary Share immediately following Admission should be approximately equal to the share price of one United Utilities Share immediately beforehand.
The United Utilities Group Reduction of Capital is being effected in order to establish sufficient distributable reserves to undertake the Return of Capital and for future dividends and is not expected to affect the value of your United Utilities Group Ordinary Shares.
Please see the examples at question 7 below.
How do I calculate my entitlement to B Shares, United Utilities Group Ordinary Shares and cash?
To calculate your entitlements under the Proposals:
- the number of B Shares you will receive will be the number of United Utilities Shares you hold on the Scheme Record Date (6:00 p.m. on 25 July 2008);
- the number of United Utilities Group Ordinary Shares you will receive is the number of United Utilities Shares you hold on the Scheme Record Date, divided by 22 then multiplied by 17; and
- you will not receive fractions of an United Utilities Group Ordinary Share, fractions will be aggregated and sold on your behalf and you will receive the cash proceeds.
So, for example, a shareholder who holds 105 United Utilities Shares on the Scheme Record Date will receive:
- 105 B shares: 1 for every United Utilities Shares held on the Scheme Record Date;
- 81 United Utilities Group Ordinary Shares (this is calculated by dividing the number of United Utilities Shares held by 22 then multiplying by 17) and, as no fractions of shares can be issued, the shareholder will also receive:
- cash in respect of the fractional entitlement of 0.13 of an United Utilities Group Ordinary Share.
What happens to any fractions of my United Utilities shares?
As a result of the exchange ratio of 17 United Utilities Group Ordinary Shares for every 22 United Utilities Shares, Shareholders may be left with a fractional entitlement to a United Utilities Group Ordinary Share. So, for example, a Shareholder with 105 United Utilities Shares immediately before the Scheme became effective would, immediately after the Scheme became effective, be entitled to 105 B shares, 81 United Utilities Group Ordinary Shares and a fractional entitlement to 0.13 of an United Utilities Group Ordinary Share. We will combine all fractions and sell them in the market on behalf of Shareholders and the proceeds of sale will be distributed to those Shareholders pro rata to their fractional entitlement.
If you are entitled to a payment for a fraction of a share, a cheque for your proportion of the sale proceeds will be sent to you, or your CREST account will be credited with the proceeds (as appropriate) by 11 August 2008.
What choices do I have for my B Shares?
Shareholders (other than Restricted Overseas Shareholders) have the opportunity to choose how to receive the Return of Capital. You can choose to receive a single dividend or to have your B Shares redeemed by United Utilities Group.
Unless you are a Restricted Overseas Shareholder, you have three alternative choices for each of your B Shares:
Alternative 1: Initial B Share Redemption
Each B Share that you elect to be subject to this alternative will be redeemed by United Utilities Group on the Initial B Share Redemption Date (expected to be 11 August 2008) at 170 pence per B Share, free of all dealing expenses and commissions.
Alternative 2: B Share Dividend
For each B Share that you elect to be subject to this alternative, you will receive a single dividend of 170 pence, following which each such B Share will be reclassified as one Deferred Share.
Your Deferred Share will not be listed, will have extremely limited rights and negligible value and will be redeemed in whole or in part at a future date or dates at the discretion of United Utilities Group in each case for an aggregate consideration of one pence. You will not receive share certificates in respect of the Deferred Shares and these will not be credited to your CREST account.
Alternative 3: Final B Share Redemption
Each B Share that you elect to be subject to this alternative, will be redeemed by United Utilities Group on the Final B Share Redemption Date (expected to be 14 April 2009) at 170 pence per B Share, free of all dealing expenses and commissions.
Whilst you retain B Shares, you will be entitled to the B Share Continuing Dividend. The B Share Continuing Dividend will only be payable to the extent that United Utilities Group has sufficient distributable reserves and it is therefore not guaranteed. The B Share Continuing Dividend will be a non-cumulative preferential dividend at an interest rate per annum equivalent to 75 per cent. of LIBOR. For further details of the B Share Continuing Dividend, please see page 56 of the Circular.
If you fail to fill in your Form of Election correctly, do not sign it or do not return it to United Utilities' registrars to arrive by 4.30 pm on 8 August 2008, then, unless the Board otherwise determines, you will be deemed to have chosen the Initial B Share Redemption (Alternative 1) for all your B Shares which means your entire holding of B Shares will be redeemed on the Initial B Share Redemption Date (expected to be 11 August 2008) at 170 pence for each B Share held by you.
How will I receive payment?
Alternative 1: Initial B Share Redemption:
It is expected that a cheque for the proceeds will be sent to you, or that your CREST account will be credited with the proceeds, by 19 August 2008.
Alternative 2: B Share Dividend:
It is expected that payment of your B Share Dividend will be made to your bank account in accordance with your existing dividend payment instructions or, if no such instructions are held, a cheque will be sent to you by 19 August 2008.
Alternative 3: Final B Share Redemption:
It is expected that a cheque for the proceeds will be sent to you, or that your CREST account will be credited with the proceeds, by 20 April 2009.
I have not received payment for the B Share Dividend/Initial B Share Redemption.
Before 29 August:
Cheques were posted by the 19 August and you should receive yours soon. If you do not receive your cheque by 29 August please call again.
Dividend payment into a Bank or Building Society:
Accounts were credited by 19 August in accordance with the mandate details provided for regular divided payments. You should confirm your account details and check with your bank.
After 29 August:
Please write to Equiniti Limited, Aspect House, Spencer Road, Lancing, West Sussex BN99 6DA, informing them of the lost cheque. When your letter is received, a stop will be placed on the original cheque and a duplicate will be issued to you. This will take approximately 10 working days from receipt of your letter.
N.B. If registered address is incorrect:
Please write to Equiniti Limited, Aspect House, Spencer Road, Lancing, West Sussex BN99 6DA. Please state your old and new addresses in the letter, and request for a duplicate cheque to be issued to you. A stop will be placed on the original cheque. You should receive the new cheque approximately 10 working days after your written instruction is received.
I am a UK tax resident individual shareholder. What is my UK tax position?
Your tax position is set out at pages 60 to 63 of the Circular. If you require any further tax guidance, we suggest that you consult an independent tax adviser.
What if I own United Utilities ADRs or I am an Overseas Shareholder?
For regulatory reasons, Restricted Overseas Shareholders and holders of United Utilities ADRs are not in the same position as other Shareholders in relation to the B Share Alternatives and United Utilities Group considers it unduly onerous to make the B Share Alternatives available to Restricted Overseas Shareholders and holders of United Utilities ADRs.
US Shareholders and holders of ADRs will not be eligible to make an election with respect to the B Shares allotted to them or, as the case may be, the Depositary and will only be entitled to receive the B Share Dividend. In the case of NZ Shareholders, the B Shares will be allotted to a nominee for such Shareholders who will not make any elections with respect to such B Shares. Consequently, such B Shares will be redeemed pursuant to the Initial B Share Redemption and the nominee shall pay the net proceeds of redemption (after the reduction of all expenses and commissions) to the relevant NZ Shareholders.
When is the qualifying or 'ex-div' date for the Return of Capital?
8 August 2008.
Can the B Shares be traded?
The B Shares are transferable. Any transfer of B Shares must be effected in writing and either in the usual or standard form or in any other form approved by the Directors. Every transfer of uncertificated B Shares must be carried out using a relevant system (e.g. CREST).
No application has been or will be made to the UK Listing Authority for the B Shares to be admitted to the Official List or to the London Stock Exchange or for the B Shares to be admitted to trading on the London Stock exchange's main market for securities.
Will I be able to transfer half the B shares to my spouse? Or do I have to transfer half my United Utilities Shares to my wife before the distribution of B shares in which case by what date must I have transferred half my shares?
Any transfer of B Shares must be effected in writing and either in the usual or standard form or in any other form approved by the Directors.
You will receive your B Shares on the Scheme Effective Date, which is expected to be 28 July 2008. If you wish to transfer your B Shares prior to receiving the B Share Dividend or prior to redemption on the Initial B Share Redemption Date (as applicable), the transfer of B Shares will need to be registered before 8 August 2008.
Will I be expected to pay CGT on the acquisition of my United Utilities Shares by United Utilities Group under the Scheme?
Please refer to pages 60 to 63 of the Circular. If you require any further tax guidance, we suggest that you consult an independent tax adviser.
What happens if my United Utilities Shares are held in a nominee account?
You will need to refer to your nominee who will be able to advise you on how to instruct them to vote on your behalf at the Court Meeting and General Meeting and how to instruct them to make the election of your choice under the B Share Alternatives.
Why can't you give more United Utilities Group Ordinary Shares to a Shareholder on request instead of returning capital? It means a Shareholder has the inconvenience of taking the cash and then having to buy back the shares.
United Utilities considered all the options available to it but concluded that the option United Utilities has chosen is likely to be the most attractive method for their Shareholders as it provides Shareholders (other than Restricted Overseas Shareholders) with the choice of how to receive the Return of Capital.
Why so long to wait for the return?
This is due to the requirements of creating a new parent company which is necessary to create the necessary distributable reserves to enable the return, which includes a court approval process.
On what date will ADR holders receive the cash?
The Depositary, as registered holder of B Shares that are beneficially owned by the ADR holders, will be sent the proceeds of the B Share Dividend on behalf of ADR holders by 19 August 2008. The Depositary will then forward the proceeds of the B Share Dividend to ADR holders in accordance with the terms of the Deposit Agreement.
What will be the foreign exchange rate used on the transaction for ADR holders to receive the return?
The Depositary will exchange the proceeds of the Return of Capital in accordance with the terms of the Deposit Agreement.
What will happen to my share certificates?
If you hold share certificates for United Utilities Shares, they will cease to be valid on the Scheme Effective Date. When the relevant share certificates for United Utilities Group Ordinary Shares are sent to you, your original share certificates for United Utilities Shares should be destroyed.
No share certificates will be issued in respect of the Class A Shares, the B Shares converted into Deferred Shares pursuant to Alternative 2 (B Share Dividend) or redeemed and cancelled pursuant to Alternative 1 (Initial B Share Redemption) or the Deferred Shares. You will receive a B Share Certificate only in respect of those B Shares for which you have validly elected for Alternative 3 (Final B Share Redemption).
I currently hold my United Utilities Shares in an ISA. Will my United Utilities Group Ordinary Shares, B Shares or Deferred Shares be eligible for inclusion?
It is expected that the United Utilities Group Ordinary Shares should be qualifying investments for the stocks and shares components of ISAs (subject to the terms and conditions of your ISA). Your ISA Manager should be able to provide you with further details. However, neither the B Shares nor the Deferred Shares qualify for inclusion in the stocks and shares component of an ISA and you may be required to receive a transfer of such shares.
Will I be entitled to the United Utilities Final Dividend?
Yes, provided you were a Shareholder, holding United Utilities Shares, on the register at the close of business on 27 June 2008.
There are references in different documents to a "return of capital" and a "return of value". Are these the same thing?
Yes, both "return of capital" and "return of value" refer to the return of approximately £1.5 billion to shareholders as set out in the Circular.
Why are you issuing the Class A Shares?
A merger reserve will be created upon the Scheme becoming effective which, in order to create further distributable reserves in United Utilities Group, will be capitalised into Class A Shares. The Class A Shares will be allotted pro rata to holders of United Utilities Group Ordinary Shares (or, if United Utilities Group so determines, to such person as United Utilities Group may procure as nominee for such holders). The Class A Shares will then be cancelled as part of the United Utilities Group Reduction of Capital. Please note that you will not receive a share certificate in respect of the Class A Shares.
For more information contact :
Equiniti Limited registrars
T:0871 384 2041
F:0871 384 2100