Q&A Dominic Coyle
Working out if Eircom investment is now in profit
The history of Eircom since its initial public offering in 1999 is complicated. Can you find the 1999-2013 capital history and give it in your column? This would be a great help to the small or large army of Irish shareholders and their capital gains tax position.
Mr MD, email
Complicated is putting it mildly . . . and it has not been very productive either for almost all shareholders.
Essentially, the only people to have made money out of their investment in Eircom, then Telecom Éireann, are those who sold out in the first days after its flotation when the shares rose as much as 23 per cent ahead of their flotation price. Anyone who hung around long enough to own Vodafone shares has been nursing a sizeable loss since.
The big question for these people is whether the push to the share price as a result of the Verizon Wireless deal finally brings their investment back into the black after all these years.
Eircom was floated in July 1999 before the advent of the euro, at £3.07 . Using the euro multiplier that applied at the time we ditched the punt – dividing the punt sum by 0.787564 – you get an original purchase price for your Eircom shares of €3.90.
In December 2000, Vodafone acquired the company’s mobile business, which was called Eircell. At that time, the Revenue Commissioners ruled that, of the original €3.90 price equivalent, €1.69 related to the landline business and €2.21 to Eircell.
Later that year, after a bidding war between Denis O’Brien and Sir Anthony O’Reilly, the rump landline business of Eircom was taken private again by a consortium called Valentia for €1.335 per share. This was paid in cash but in effect crystallised a loss per share for Eircom shareholders of 35.5 cent.
If you think that’s confusing, wait until we switch now to the Vodafone side of the business. When the UK mobile group bought Eircell, the original Telecom Éireann shareholders received shares as payment in the deal.
However, it was nothing as simple as whole numbers. Oh no. Instead, for every two Eircell shares, the Eircom shareholder received 0.9478 of a Vodafone share.
It was the bad luck of the Irish shareholders to be receiving Vodafone stock at close to its record high, a level it has not seen since.
Not surprisingly, given the number of people involved, and the fractions of shares acquired in the deal, Revenue decided to set an “acquisition price” for each of the Vodafone shares now held by original Telecom Éireann shareholders. That figure was €4.66.
This €4.66 is in effect the “price” at which you are deemed to have acquired those shares and equally the breakeven price on any subsequent disposal.
So where does that leave you after the Vodafone-Verizon deal? Well, in common with all Vodafone shareholders, you will receive a “distribution” from the company on completion of the deal of a sum equivalent to 112p per share in a mix of cash and Verizon shares.