Note for Mr P Sheehy S E C R E T
Share Issue by Imasco
2
The Cap on Imascols share capital
At present Imasco can issue up to 57.5 million shares without obtaining
futher shareholder consent. With a current issued capital of 51.1 million
shares, the issue of 6.4 million shares to make a total of 57.5 million would
produce C$275 million at a price of C$43 each. If Imasco were to issue
3.4 million shares to B.A.T Imasco would still be free to issue 3.0 million
to third parties which would produce C$146 million: in this event B.A.T's
share of Imasco would drop from 442 immediately after the issue of
3.4 million shares to 42Z after the 3 million had been issued to third
parties.
If Imasco increases its cap to 60 million after the issue of 3.4 million
shares to B.A.T, the Canadian company will then be free to issue a further
5.5 million shares. At a price of C$43 per share this will produce
C$236 million. If all these shares are issued to third parties, B.A.T's
interest will drop to 40%.
Dividends from an investment in Imasco common shares
in relation to acquisition interest cost
The Imasco gross dividend for the year to 3 I March 1985 is C$ I. 24 per
share. Assuming interest at 12% and a purchase of shares at C$43 each, gross
acquisition interest will be C$5. 16 per share. Thus there is a substantial
gap between dividend income and acquisition interest.
If the purchase is routed .through BATUS.tax relief at 461 on acquisition
interest will reduce this to C$2.79 per share. Provided BATUS obtains 102 of
the Imasco share capital the tax on dividends will be less than 46%. To
achieve this it will be necessary, to transfer some of the Westanley shares to
BATUS in addition to the 1.3 million owned by IMBAT, which has capital gains
tax implications. However once this is effected the tax paid on gross Imesco
dividends received by BATUS will be roughly 20% (10% Canadian withholding tax
and approximately 10% US tax which is dependent on Imasco's underlying tax
rate). At the current level of Imasco dividends, BATUS will receive C$0.99
per share. Thus the initial difference between acquisition interest and
dividends per share is reduced from CS 3. 92 gross to C$1.80 net of tax. Dn
3.4 million shares this is CU. I million.
It is difficult to forecast when dividend increases will cover'
acquisition interest. However a compound growth in dividends of 13% per
annum will produce a net of tax dividend equal to the net of tax interest
charge after 5 years. Imasco I last five year plan suggested dividend
increases for the first three years of 202, 17% and 20t. These plans,
however, assumed very low growth for Tobacco profits and since then Imasco
has acquired Peoples and other acquisitions will no doubt take place. There
also may be changes in interest rates.
After Imasco dividends exceed interest charges on an after tax basis,
BATUS will commence paying dividends from this income to B.A.T Industries.
These dividends will bear 5% US withholding tax.
CD
-4
B P GARRAWAY --4
BAT Industries document for Province of British Columbia 12 April 1999