Opting to retain Vodafone shares

Q&A: What if you do not want to select B shares at all and just want to keep your current number of Vodafone shares?

I did the sums and feel that this offer is a method of reducing the total number of shares. The share price for Vodafone is £1.20 sterling (€1.74).

Having 103 shares and dividing by eight, keeping it simple, equals 12 (in whole numbers).

These 12 B shares are then valued at €0.216. So am I right then that 12 B shares multiplied by eight = 96 x €0.216 = €20.73 dividend? And I would have 84 A shares, this being based on 7 x 12 = 84 and 84 x £1.20 = £100.80.

So €20.73 plus £100.80 is not worth it, as my 103 shares are 103 x £1.20 = £123.60.

Can I opt to retain all my shares?

I have tried to keep it straightforward but perhaps I made some jumps.

Ms D.F., e-mail

First things first, the reason the deal looks less than appetising to you - at least in part - is because you are working on flawed sums.

While it might be simpler for the purposes of arithmetic to move to whole numbers, making your 103 shares effectively 96 for the purposes of the B shares only muddles the sums.

In fact, at a running share price of £1.20 per Vodafone share, the sums will show that the payment you receive plus the value of the remaining shares will be equal to the current value of your full holding.

At any Vodafone price below £1.20 a share, you will be marginally ahead on the deal.

For simplicity's sake, let's assume you have 104 shares rather than 103.

At £1.20 a share, your holding is worth £124.80.

You get seven new shares for every eight you currently own - a total of 91 new shares - and eight B shares for every eight shares you now own, a total of 104 B shares.

Assuming no change in the share price, your 91 new ordinary shares are worth a total of £109.20. The 104 B shares can be cashed in - one way or another - for 15p a share, a total of £15.60.

Adding the £15.60 cash you receive to the remaining holding's value of £109.20, you reach a total value of £124.80, the same as you had when you started out.

You also drag in euro equivalents. You are best leaving them out.

The 21.6 cent per share price in the document is illustrative based on the foreign exchange rate on the day the example was put together. Ultimately, Irish shareholders will receive the euro equivalent of the sterling amount on the day the transaction is completed and that could be very different to 21.6 cent.

On the more critical point of what to do if you want to keep your shares, the only way to do that is to vote against the extraordinary general meeting (egm) motion to proceed with the redistribution.

You will need to get your proxy vote to Vodafone's share registrars - as instructed in the form - by 10:45am on Sunday, July 23rd for it to register at the egm on Tuesday, July 25th - unless, of course, you are attending in person.

If, however, the motion is passed at the egm, you will have no choice to opt out and, if you haven't expressed a preference in terms of how you receive the payout, Vodafone will default to Alternative 1 - redeeming the shares on August 11th and sending you the cash which, depending on your personal situation, could be liable to capital gains tax.

Choosing the best deal at egm/agm

I read your answer to a reader who asked for the various options of the Vodafone egm/agm to be explained.

A few days before you printed the question and answer, I telephoned the Vodafone query desk which was set up to explain the various options.

The answers I received were similar to those that you provided, with one major difference. The helpdesk told me that the third option would provide a 75 per cent payout of the 15 pence per B share (that is 11.25 pence per share) each time a payment is made for the next few years.

The amount (11.25 pence) would not change. I chose the third option based on that information. I asked again to ensure I understood the explanation. I think the third option is better if the Vodafone explanation is correct. Otherwise it does not make much difference.

Mr J.H., email

It sounds like there was some confusion in the information you gleaned from the helpdesk on Alternative 3.

That option, which I strongly suggested, was relevant only to people with a very significant shareholding - not something of relevance to practically all Vodafone's 440,000-plus Irish shareholders - because it allows shareholders to dispose of tranches of shares on several dates over the next couple of years.

This is relevant only as a matter of tax planning. Shareholders taking this option can decide the number of B shares they want to sell immediately, if any. They can then dispose of any outstanding shares on February 5th and August 5th in both 2007 and 2008 as they choose.

Where the 75 per cent comes in is this. For any shares that are retained beyond the initial date, Vodafone will pay a dividend equal to 75 per cent of the London Interbank Overnight Rate (Libor), which is the rate banks lend money to each other. So, for example, if Libor was 4.8 per cent at the time of a dividend payment, a dividend amounting to three-quarters of that - 3.6 per cent or 0.54 pence - would be paid on each 15p B share.

My advice remains the same. Unless you have a Vodafone holding so significant that selling it now would present you with tax issues, get rid of the B shares now.

Please send your queries to Dominic Coyle, Q&A, The Irish Times, 10-16 D'Olier Street, Dublin 2 or by e-mail to dcoyle@irish-times.ie. This column is a reader service and is not intended to replace professional advice. Due to the volume of mail, there may be a delay in answering questions. All suitable queries will be answered through the columns of the newspaper. No personal correspondence will be entered into.