What does the deal mean for a typical First Active shareholder?

Q&A: First Active has agreed to a 887 million offer from Ulster Bank parent Royal Bank of Scotland but what will it mean for shareholders?

The Royal Bank of Scotland offer, which the First Active board has agreed to recommend to shareholders, is an all-cash offer. That means all shareholders will receive cash for their shares, assuming the proposal wins approval at an e.g.m. of shareholders. The typical First Active shareholder holds fewer than 1,000 shares in the firm. These are shares received free at the time of the flotation - 450 per eligible account - and a 10 per cent loyalty bonus paid to those who applied for their free shares before September 29th, 1998 and held them for two years after they floated on October 6th, 1998. Twenty-three free shares were granted a year after flotation with a further 22 shares issued to those former members who still held their stake on October 6th, 2000.

Almost 84,000 people with either a mortgage or deposit account with the former building society will have 495 shares. Between them, they owned 26.72 per cent of all shares at the end of last year. A further 54,000-plus had both both mortgage and deposit accounts and now hold 990 shares, including the loyalty bonus, accounting for almost 30 per cent of First Active stock at the end of 2002.

How much cash are we talking about?

The offer amounts to €6.20 per share, a figure that was a third higher than the share price at the end of last week and higher than the shares have ever traded.

For most shareholders - those owning 495 or 990 shares - that means a cheque for €3,069 or €6,138 respectively. This comes in addition to the €1.12 that investors got for each share held as a result of the capital reduction exercise completed last June.

When will I get it?

That depends on how fast the firms expedite the process but it's unlikely before Christmas. Yesterday, parties said the acquisition was expected to be completed in January 2004. That would benefit shareholders who have already received a payout from the firm this year as a result of the capital reduction scheme.

Will the money I receive be liable to tax, and if so how much?

Unless you are a very small scale shareholder, you could face a bill for capital gains tax. How much depends on when the deal is completed but, assuming it takes place in January, the capital reduction payout will not enter the equation.

Every taxpayer is entitled to make a capital gain of €1,270 each year before paying capital gains tax (CGT). Any profit above that is taxed at 20 per cent. On the timeline outlined by the companies, the capital reduction and the acquisition will fall into different tax years.

This means that of the €3,069 or €6,138 coming to the most typical First Active shareholder - those with 495 or 990 shares - €1,799 and €4,868 respectively will be liable to CGT. This will means tax bills of €359.80 or €973.60 for these shareholders.

So what do I do now?

Most people will wait for the bank to send out details in four weeks. Then there will be an e.g.m. If the proposal is approved, it will go to the High Court for final approval. Alternatively, you can sell your stake now on the open market. you will get less than the €6.20 on offer - last night the shares closed at €6.12 - but you will have immediate access to the cash.