Working out your gain as Sumitomo buys Fyffes

Q&A: I bought Fyffes shares at IR£1.70 in 2000. What is my capital gains tax situation?

Assuming the Fyffes takeover is approved, the payout to shareholders will be €2.25 per share.

Assuming the Fyffes takeover is approved, the payout to shareholders will be €2.25 per share.

 

I know you previously covered the base cost of Fyffes shares for capital gains tax. I bought Fyffes shares at IR£1.70 in the year 2000, I think. I would be grateful if you would calculate it for me?

I gather they are being taken over so I presume I will have to sell?

Mr DM, email

It’s been a rollercoaster ride for shareholders in Fyffes over recent years but it does look as though the business which, in Ireland, dates back to a Dundalk grocer run by the grandfather of the current executive chairman David McCann, and which has been listed since 1981, will shortly disappear.

The €750 million offer from Japanese corporate giant Sumitomo has the backing of the board and of large shareholders – including the McCanns – who between them hold close to 30 per cent of the stock. It will be put to all shareholders at an extraordinary general meeting on Monday, January 16th, and, assuming it is approved, Fyffes hopes to complete the deal before the end of February.

That would mean shareholders who accept the offer would get their cheques before St Patrick’s Day.

Will you have to sell? That depends. Under the 2014 Companies Act, Sumitomo or, to be more accurate, the vehicle it is using to conduct this deal – called Swordus Ireland Holding Limited – can compulsorily acquire all remaining shares if it secures acceptance of its offer from holders of 90 per cent of the shares.

Technically, you could still object to this but that would require a High Court challenge which you would almost certainly lose.

Final dividend

So, without prejudging the extraodinaray general meeting, let’s assume the takeover is approved. The payout to shareholders will be €2.25 per share. Of that, two cent is a special final dividend for 2016, which is an income tax matter. So the purchase price for capital gains tax purposes is €2.23 a share.

That brings us back to your question about base cost. And this is where it gets messy again. Amid the wheeling and dealing by Fyffes down the years, the company has spun off various parts of its business. Notably, this includes hiving off its property assets into a listed vehicle called Blackrock International Land in May 2006. In 2010, this company was renamed Balmoral International Land.

In January 2007, the company’s fresh produce assets were also spun out into a new listed company – Total Produce plc.

In each case, shareholders in Fyffes plc were given one share in each of the new companies for every share they held in Fyffes. For people like you who bought their shares before this division of assets, your original single Fyffes share was now split into three shares – one in Fyffes, one in Blackrock/Balmoral and one in Total Produce.

Each time a company subdivides itself in this way, the Revenue determines which portion of the pre-split share is accounted for by the new company and which remains with the rump. In Fyffes’s case, Revenue will have had to do this exercise twice – first for the Blackrock deal and then again when Total Produce was established.

As you say, I went through the process stage by stage in a previous article in November 2015, so I don’t propose to do that again. What is important to you, assuming the deal goes through, is the outcome – ie what portion of each of your original Fyffes shares bought back in 2000 or thereabouts is now represented by the diminished Fyffes business.

The breakdown is as follows. The ratio of the original share price accounted for by each of these is:

- Balmoral - 22 per cent

- Total Produce - 34.65 per cent

- Fyffes - 42.35 per cent

Your IR£1.70 purchase price in the days when we still traded in punts translates to euro as €2.16, and 42.35 per cent of this is 91.5 cent. So that is the base cost for the Fyffes shares you now own.

Capital gains

To work out capital gains, you first need to apply an indexation factor to that price. Until abolished by former minister for finance Charlie McCreevy, this was designed to reflect the impact of inflation in devaluing the price of assets.

If you bought the shares before the end March 2000 – yes,we had the funny April -March tax years back then – the index multiple was 1.193, bringing your 91.5 cent acquisition price to €1.09 for each of the Fyffes shares you still own. If it was later in 2000 that you bought, the relevant indexation factor is 1.144 and that brings your “base cost” to €1.05.

With this Sumitomo deal offering €2.23 a share, your gain per share is €1.14 or €1.18 per share.

Finally, you can offset any costs incurred in buying or selling the shares from your ultimate gain and you will not be liable to capital gains tax on the first €1,270 of any gain as it falls within the annual CGT exemption limit.

Please 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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