Cash Wednesday for Eircom investors cashing in on €64m Vodafone windfall
HUNDREDS of thousands of small-time investors who bought Eircom shares in 1999 are this week sharing in a €64m cash bonanza.
Cheques have started arriving years after many had assumed that their investment in the state phone company was worthless.
The biggest stock flotation in the country has long been written off as a failure – but many are now getting some return on their money.
It is hoped that the giant payout will provide a welcome boost for the economy as people either reinvest or choose to spend their windfall.
The sale of Vodafone's US interest to telecoms giant Verizon means about 380,000 shareholders in Ireland are getting either a cheque in the post or money lodged in their bank accounts this week.
The total payout in Ireland is estimated to be about €229m, made up of both a cash payout and shares in Verizon. The collective cash payout is estimated to be about €64m.
Retail experts are hoping the payouts will give a boost to consumer confidence and free up spending on big-ticket items, such as home refurbishment.
"We'd see a significant proportion of the Vodafone money coming back into the economy," said David Fitzsimons of the industry body Retail Excellence.
"All of a sudden, we have people getting a significant amount of money. Marry that with the Home Renovation Scheme, which gives you tax back on the labour aspect of the work done, and it all adds up to a pretty compelling opportunity to do what you've been postponing."
Vodafone's Irish shareholders account for about 1pc of the value of the company.
Stephen Lynam, director of Retail Ireland, said that with retail sales severely impacted by the recession, the payouts would be welcomed by shop owners.
"Whether people spend in bricks and mortar outlets or online, we would urge them to shop in retailers that have a physical presence here. That way, their spending supports Irish jobs," he said.
But shareholders may be taxed on their payout, especially if they didn't return a letter to Vodafone by late last month, indicating whether they wanted their payout to be treated as an income payment or a capital payment.
If you failed to return the Form of Election, Return of Value document, your payment would have been automatically treated as income and will now be hit with income tax. The amount will also be subject to PRSI and the Universal Social Charge. But if you chose the capital option, you are likely to have avoided tax.
The reason for this is that if you bought Eircom shares in 1999, those shares became Vodafone shares in 2001 when Eircom sold its mobile arm Eircell to Vodafone.
If you still hold those shares, you have most likely made a loss on your initial investment in Eircom and the Revenue Commissioners have indicated that you won't have to pay any tax as a result – as long as you received your payment as capital.
Last month, Vodafone estimated that if you held 1,000 shares, you would have received a cash payout of about €365 and about €877 equivalent value in Verizon shares.
If you are an individual shareholder with fewer than 50,000 Vodafone shares, you will, if you wish, be able to sell all, but not part, of your Verizon stock through a cost- and commission-free dealing facility.
To do this, you must return the form you received from Vodafone, highlighting this, by April 4.