Eir is back in news but how bad are my losses?

Q&A: Dominic Coyle

Calculating the financial fallout from the investment in what once was Telecom Éireann is a tricky business. Photograph: Aidan Crawley

Calculating the financial fallout from the investment in what once was Telecom Éireann is a tricky business. Photograph: Aidan Crawley

 

I know you have dealt with the issue of Eircom shares on several occasions but the recent news about the company possibly being sold yet again reminded me that I need to settle my affairs and to do that I need to quantify my losses on Eircom shares to offset against possible capital gains.

Mr EV, Wexford

Getting to grips with the financial fallout from the investment in what was then Telecom Éireann but has since morphed into Eircom and, now,Eir, is a hardy annual. And the company’s reappearance in the news in relation to yet another potential change of ownership will no doubt remind many that they continue to nurse losses on their ill-fated investment.

Of course, Eir is no longer a listed company and any future change of ownership won’t have any further impact on your position and that of other shareholders but, if you have not already addressed it, there certainly is an outstanding capital loss which you can offset against other capital gains.

The Eircom position is complicated in that the various deals done relating to different parts of the original company mean that, unless you have since sold them, you now have shares in both Vodafone and Verizon.

The bad news is that you will have lost money pretty much every step of the tortuous way that was investment in Telecom Éireann.

The most straightforward element is probably the original “take-out” of Eircom by Sir Anthony O’Reilly’s Valentia consortium back in 2001, barely 16 months after the flotation.

Revenue has determined that you suffered a loss of 35.5 cent a share at that time. However, you will have received some free “anniversary” shares. As these cost you nothing, it will reduce your overall loss to 30.16 cent per share.

That’s the easy bit.

Eircell sale

You also got Vodafone shares as a result of the sale of Eircell, the then mobile business of Eircom, shortly after the company floated on the stock market.

And, to compound things, more recently you will have received shares in US telecoms group Verizon when Vodafone sold up its US business.

At that time, Vodafone gave its shareholders a cash payment and a number of Verizon shares. If you sold those shares at the time, Revenue has determined that you will have suffered a loss of 72.1 cent for each Vodafone share you held before the sale of the US business to Verizon, their partner in the joint venture.

But if you did not sell those Verizon shares at that time, you are now stuck with shares you can only trade through the US which is not particularly productive for what is likely to be a small holding.

In terms of capital gain, it does get complicated. The Verizon deal gave 0.0263 of a Verizon share for every Vodafone share held before the deal. On the day the deal was done, Verizon shares closed at $39.39.

Using the euro conversion rate on that day, this figure translates as €26.66, and the 0.0263 fraction means you would have got 75.4 cent of Verizon shares for every original Vodafone share you held.

Verizon shares were trading at the end of last week at $47.86. The stronger euro means that converts at €40.02 and makes the 0.0263 fraction worth €1.05. The difference between the €1.05 and the February 2014 value of 75.4 cent is 29.6 cent, so your current loss on the Verizon deal is now 42.5 cent for every original Vodafone share you held.

Revenue’s calculations

You’re still not done. After the Verizon deal, Vodafone issued six new shares for every 11 shares you originally held in the company.

These were trading at 206.45p at the end of last week – which was the equivalent of €2.34.

According to Revenue’s calculations, you would need to be getting €4.58 a share for these before they would be in profit, so you are currently nursing a loss in the region of €2.24 a share on each “new” Vodafone share you still hold.

That’s a lot of figures so, to bring it all together, you have definitely lost 30.16 cent on every original Eircom share you bought dating back to the O’Reilly privatisation of the business.

In addition, you have lost 72.1 cent from the time of the Verizon deal, presuming you sold your shares at that time. If not, you are currently nursing a loss of 42.5 cent a share but that figure could change depending on the price of Verizon shares when you do sell and on the dollar/euro conversion rate on that day.

Finally, on the remaining Vodafone shares you hold, you need to sell them at €4.58 to make a profit. At current rates, you are nursing a loss of €2.24 per Vodafone share though, again, that could change depending on the Vodafone share price when you eventually sell those shares and the sterling/euro conversion rate at that time.

You can only claim losses that have been “crystallised” – ie that have actually happened. So you can only take into account losses on shares you have actually sold, and not “paper losses” on shares that you still hold.

I told you it was complicated!

Send your queries to Dominic Coyle, Q&A, The Irish Times, 24-28 Tara Street, Dublin 2, or by email to dcoyle@irishtimes.com. This column is a reader service and is not intended to replace professional advice

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