An Irish Times Guide to personal finance.

Canada Life

I am a Canada Life shareholder, having received these shares following the flotation of the company in November 1998. Over the past few weeks, I have read all the recent media coverage, I received a formal offer from ManuLife and a recommendation from Canada Life to decline. Last week, someone from ManuLife phoned me at home asking me if I had made up my mind and if I needed assistance filling out the forms. What options do I have and which should I take?

Ms C.D., Dublin

It's a personal thing but I don't like cold-calling - whether it is someone trying to sell you a product or, as in this case, someone trying to get you to make a certain decision.

And, from my recent mailbag, you are not the only person to receive such communications. The people from ManuLife stress that they are not trying to get people to decide one way or the other, just trying to persuade them to voice an opinion.

With more than 10 per cent of all Canada Life shareholders based in Ireland, most of whom probably received their shares as part of the original flotation in 1999 and promptly forgot about them, lethargy is something ManuLife undoubtedly fears. Failure to secure sufficient votes will scupper its ambitious plan.

However, I have yet to encounter a cold-caller who could be said to be acting primarily in the interests of the people they are contacting. Cold-callers are paid by someone - in this case ManuLife - to get a message across and that is what they will endeavour to do. No-one can pretend that ManuLife is interested in soliciting No votes to its proposal.

To be fair, it appears that Canada Life has similarly been polling its shareholders - albeit not in Ireland, so far as we are aware. So shareholders should be cognisant that there are no angels in an unsolicited bid situation like this.

So what are the options? Well, on the surface, it is reasonably simple. You can choose to support the ManuLife offer, which is pitched at 40 Canadian dollars in cash or 1.055 ManuLife shares for each Canada Life share you own. Alternatively, you can do nothing, which will ultimately equate to rejecting the proposal.

You can, of course, accept the offer now and withdraw that acceptance later in the process if you change your mind or a higher offer emerges.

But nothing is ever that simple. One of the peculiar features of the ManuLife bid for Canada Life is that sellers could be forced to take payment in shares in a company with which they are unfamiliar. ManuLife has agreed to pay cash for 40 per cent of the shares in Canada Life with the rest being bought with ManuLife stock.

Assuming it succeeds and assuming that more than 40 per cent of Canada Life's shareholders opt for a cash payment, everyone could find their cash sum being scaled back pro rata and some of the price being paid in stock.

For instance, if half the Canada Life shares seek payment in cash, the cash element will be oversubscribed and sellers would get 40/50ths, or 80 per cent, of the money in cash and the balance in ManuLife shares.

This is not as unlikely at it may seem. There are 25,000 shareholders in Ireland and a further 35,000 odd in Britain. Between them, they account for about 30 per cent of the shareholders, although not necessarily 30 per cent of the stock.

With ManuLife having no presence in Britain and Ireland - and giving no guarantee about its future presence in these markets - these shareholders may want to get out and take cash. It might not take many US and Canadian shareholders to make the same decision to push the cash take-up beyond its limit.

On the other hand, ManuLife is the top Canadian insurer - a good deal bigger than Canada Life. Sticking with it might not be a bad idea but hardly for a small retail investor who only got the shares by accident (i.e upon demutualisation) and who has little understanding of the company and its strengths and weaknesses.

You should be aware that the board of Canada Life has urged its shareholders to reject the deal. It maintains, essentially, that the offer undervalues the company and its shares, and that ManuLife is in a position to pay more. ManuLife, for its part, says it is offering fair value, although that does not mean it won't offer more if it feels the need to.

The company's share price has been at or close to the bid price since it emerged but there has been no sign of a rival bidder.

While Canada Life is opposing the deal, selling would realise an average gain of about €6,000 - double the flotation value of the shares held by investors.

The deadline for making a decision is the last day of this month but I would not worry too much about this as it is a deadline that can be extended and generally is in such takeover attempts.

Savings certs

At present An Post is quoting 16 per cent on its savings certificates held for five years and six months. As these certificates are free of DIRT tax, is not the real rate paid to the saver nearer to 3.3 per cent or 3.4 per cent per annum?

Mr D.G., Cork

You want to be careful about what you're comparing in terms of savings. For instance, An Post savings certificates pay interest on a six-monthly basis while DIRT is payable annually. So you are dealing with interest on interest.

Equally, savings certs are designed specifically as a medium-term investment with interest on interest meaning they become more valuable the longer they are held.

The simplest comparison would be by measuring what you get into your hand after the five-year, six-month term with either product. As a rough rule, the 3.4 figure would not be too far from the mark.

I refer to your answer to a CGT query two weeks ago. The question raised was whether indexation could be applied to losses which would then be set-off against gains. The answer to this should have been no. This is irrespective of any changes in this year's Finance Act.

Losses are always restricted to actual "monetary" loss. The only purpose of indexation is to reduce a monetary (before inflation) gain to an actual (post inflation) gain, i.e. buy at 20 and sell at 10 with indexation at 1.5. Your tax loss is always restricted to 10. I hope that this is of assistance.

Mr J.F., Dublin

Apologies all round for any confusion and thanks to Jimmy Fennelly of Fennelly O'Farrell Accountants. Of course, you cannot index a loss - not that you can index anything from the end of last year. In fact, that was clear from the answer, although it would have been more correct if I had avoided all mention of the new indexation regime given that the query related to losses on share dealings.

As the piece states and Mr Fleming and one or two others pointed out, indexation, when it existed, applied only to gains.

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.