1. Definition
The act of splitting off a part of an existing company to
become a new company, which operates completely
separate from the original company. Shareholders of the
original company are usually given an
equivalent stake of ownership in the new company. A
demerger is often done to help each of
the segments operatemore smoothly, as they can now
focus on a more specific task. opposite of merger.

2. The benefits of demerger
Why we are considering demerger now
As a property company we set out to take key investment decisions from
a position of strength .We restructured to create Retail, London and
Outsourcing (now Trillium) in 2004 because it was right
for the Company. The three businesses have grown and now have the
size and strength to stand alone.
The demerger plan recognises that these businesses have different
financial characteristics, and that specialisation will help each business to
raise capital. We also believe that greater recognition will be given to
major successes achieved within a specialised business, rather than
within a more broadly based Group.

3. The history of the demerger process
The potential benefits of demerger were fi rst raised within the
Company in autumn 2005 following the successful creation of the
three business units in 2004. The review process started long before
current market conditions were evident and we believe demerger will
be delivering value for shareholders when the current
market conditions are regarded as history.
The Board has a strong track record on bold decisions. In recent
years we acquired Trillium, exited the industrial sector through the
property swap with SEGRO and boosted our development pipeline
ahead of the current cycle. These decisive actions have proved
successful. Demerger is the latest bold decision in the ongoing
evolution of the Company.

4. Businesses benefit from specialisation
Historic data shows that in the UK and US specialist companies have
produced higher shareholder returns over the last 10 years. We
believe a balance sheet tailored to the respective sector cycles has the
potential to improve return on shareholders’ equity by a material
amount. With a bespoke financial structure our London and Retail
portfolios could be valued more easily and could raise capital more
easily. We believe they will also be better positioned to access new fl
ows of capital into the global listed property sector.

5. Our progress so far
Initial preparatory work for demerger is well advanced, and this includes the
appointment of the leadership teams for each business. In terms of Chief
Executives, Francis Salway will run the Retail business, Mike Hussey will
continue to run London and Ian Ellis will continue to run Trillium.
Sir Christopher Bland has been appointed Chairman of Trillium in the run
up to its demerger and subsequently. His recent roles include Chairman of
BT and Chairman of the Board of Governors at the BBC.
Rick Haythornthwaite has been appointed as Chairman of the Retail
business following demerger. He is currently Chairman of Mastercard Inc,
Chairman of the Risk and Regulation Advisory Council and partner at
Star Capital Partners Ltd. His previous roles include Chief Executive of
Blue Circle Industries and Invensys and Non-executive Director of ICI. Paul
Myners will assume the role of Chairman of the London business at
demerger.

6. The cost of demerger
There will be the additional cost of running three corporate entities,
including three boards, and our estimate is that this will be around £15m
per annum, with the businesses able to manage overall costs down once
separated.
In addition, the cost of finance for the three businesses is expected to
increase slightly, but we believe the credit quality of the three individual
portfolios will keep this increase to moderate levels. There will also be the
one-off costs of undertaking the transaction – including legal, accountancy
and adviser fees – and we expect these to be in line with similar
transactions.
While we will keep costs under close scrutiny throughout the process, we
believe the long-term benefits for shareholders will significantly outweigh
the initial costs of demerger.

7. A clear step forward
Demerger represents a clear step forward for this Company and is in
keeping with our heritage of taking key decisions early. In our view, the
independent London and Retail businesses will – along with Trillium –
continue to lead their markets, with their proven management teams
supported by tailored fi nancial structures.

8. CTM17250 - Distributions: demergers: introduction
ICTA88/S20, ICTA88/S213 (1) - (2), & ICTA88/S238 (1)
Sometimes businesses grouped together under a single company umbrella could be run
more effectively if they were allowed to pursue their own separate ways under
independent management and ownership.
The tax system inhibits the splitting up of businesses in this way as such a split will
normally involve a distribution under ICTA88/S209.
The demerger provisions in ICTA88/S213 to ICTA88/S218 aim to make it easier to
divide and put into separate corporate ownership, the trading activities of a company or
group of companies, but without any new controlling owner being involved. They do this
by removing the distribution charge in appropriate circumstances, and making the
distribution an 'exempt distribution'. ICTA88/S213 (2) provides that the legislation
applying to distributions of a company shall not apply to exempt distributions. The
legislation also provides for some CG consequences.
Demergers relate to trading activities only. They can involve all sizes and types of
company. Companies that make use of the demerger provisions range from small
private companies to some of the UK's largest public companies.

9. The broad effect of the legislation for the company making the
exempt distribution, is that:
there is still a CG disposal, to which TCGA92/S139 may apply,
the provisions in TCGA92/S178 and S179 (anti-avoidance
provisions relating to the transfer of assets from other
companies in a group to a company that then leaves the group)
do not apply to a company leaving a group solely as a result of
the demerger,
for accounting periods ending before 6 April 1999 no ACT had to
be accounted for on the distribution. For accounting periods
ending on or after 6 April 1999 an exempt distribution is not a
distribution for shadow ACT purposes.
The broad effects of the legislation for
the shareholder receiving the exempt distribution, are that the
distribution will: