Q & A

Please send your queries to Dominic Coyle, Q&A, The Irish Times, D'Olier Street, Dublin 2 or 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 queries. All suitable queries will be answered through the columns of the newspaper. No personal correspondence will be entered into.

Eircell and Vodafone

I'm confused. I had 976 shares in Eircom. Following the sale of Eircell, I have now received a letter and share certificate from Vodafone but the figures make no sense to me. The letter also talks at length about fractional entitlements which have me totally confused. Could you explain these entitlements and the discrepancy in the number of shares I now appear to own in Vodafone?

Mr A.M., Dublin

I very much doubt that you are alone in your confusion over what has happened to your Eircom shareholding following the sale of Eircell to Vodafone. To put your mind at rest at the outset, I can assure you the figures are correct.

When Eircom decided to sell Eircell to Vodafone, the first thing it had to do was to break the Eircell part of the company away from the rest. It did this following approval at the extraordinary general meeting in May. After this meeting, you effectively held one Eircom share and one Eircell share for every Eircom share you held originally. Because the Eircell part of the company was sold to Vodafone a couple of days later, there was no time to issue new share certificates to investors. Nevertheless, you now held, effectively, 976 Eircom shares and 976 Eircell shares.

This is the case whether you voted for or against the motion at the e.g.m. as it won enough support to be binding on all shareholders.

The sale of the mobile phone business to Vodafone involved swapping two Eircell shares for 0.9478 of a Vodafone share. To put it another way, under the terms of the deal each Vodafone share was worth a fraction over 2.11 Eircell shares. So your 976 Eircell shares would translate into 462.5264 Vodafone shares - 9762x0.9478=462.5264. Of course, given you cannot own a fraction of a share, this was reduced down to 462 shares. Again, whether you agreed as a shareholder to support the sale of Eircell to Vodafone by voting for the deal or not, you are forced to go along with it. This is because Vodafone won the support of enough shareholders to declare the offer unconditional and compulsorily acquired all the Eircell shares.

This is precisely the same as happened when you first bought Eircom shares upon flotation. In your case, you applied for £3,000 of shares and got 976 shares at the €3.90 (£3.07) flotation price, not the 976.72 shares your £3,000 equalled. The balance, £2.22, was returned to you in a cheque.

That is what Vodafone means when it talks about fractional elements. In your case, the fractional element was 0.5264 of a share - the amount in excess of the last full share to which you were entitled. Under the terms of the Vodafone offer for Eircell, all these fractions were put together to create a group of shares that was sold on the open market.

The price at which these shares were deemed to be sold, according to the letter you received from Vodafone, was £1.9775. Remember, this is sterling, as Vodafone is a British company quoted in sterling on the London market. So your 0.5264 of a share was worth £1.0410 sterling.

This is where it gets a little bit more complicated because Vodafone actually made a mistake it its original letter to shareholders such as yourself. It said the exchange rate was £1 sterling = €0.6100. This is nonsense, as it would imply the euro was more valuable than sterling, which is obviously not the case. The company subsequently sent out another letter to shareholders correcting this to read €1 = £0.6100 sterling, or 61 pence sterling.

On that basis, your £1.0410 sterling fractional entitlement is worth €1.7065, or €1.71, and you should have received this by way of a cheque. Those people whose fractional entitlements amounted to less than €1 will receive nothing - again in accordance with the terms of the original offer from Vodafone for Eircell. Well, it was hardly worth writing or cashing a cheque for an amount that small.

So, you now own 462 Vodafone shares as it states on your new Vodafone share certificate. You can hold onto these or, if you wish, sell them. Goodbody is offering special terms for those wishing to sell and forms should have been included in the package you received. Other brokers, no doubt, will offer competitive rates too, so don't feel bound to go with the one offered. If you do hold on to the shares, remember that you will have to gamble on what will happen to the euro/sterling exchange rate as well as the actual performance of the share in the market. The more the euro recovers against sterling, the less valuable your holding.

Now, all you have to do is wait and see which consortium succeeds in acquiring Eircom so you can sell your remaining 976 shares in that company.

Special Savings Accounts

With the deposit rates on offer from various lenders almost the same, would it be worth opting to save with one of the mutuals in the hope of getting a windfall on demutualisation?

Mr D.B., Waterford

That really would be the icing on the cake, wouldn't it? Whether you would stand to benefit or not depends on the rules of the society. Irish Nationwide, for instance, has a threshold below which accounts will not qualify in the event of any demutualisation. That threshold exceeds what you would have in one of the new special savings incentive accounts. At the EBSbuilding society, share accounts that have a balance of not less than £100 for the six months prior to any decision to demutualise and that retain that balance until demutualisation would benefit.

However, a spokesman for the building society insists the issue does not arise as EBS is fully committed to its mutual status. To be fair, this has been the EBS's consistent position and, while any responsible institution can never say "never", the prospects of EBS changing status within the five year time frame of this scheme seem infinitesimal.

Given the higher threshold - I think it may be as high as £10,000 - in Irish Nationwide, the issue does not arise there even if it is the more likely to opt for such a route.

As the EBS spokesman suggested, intending savers really would be far better advised to concentrate on the relative merits of the individual savings options than on any external factors such as the likelihood of demutualisation.