Vodafone windfall: how much will I get, what do I do?
Vodafone’s ‘return to value strategy’ is the latest development for investors who originally bought into the Telecom Éireann flotation in 1999
If you’re one of the 380,000 or so Irish investors who directly hold shares in Vodafone, you should have received a chunky circular in recent weeks outlining its so- called “return to value” strategy.
However, before you get overwhelmed by the amount of documentation begging for your attention, here are some simple pointers on maximising your return from the transaction.
What’s it all about?
Having agreed to sell its 45 per cent stake in the US business Verizon Wireless to Verizon, in a deal valued at $130 billion (€95 billion), Vodafone is set to distribute almost $83.2 billion (€62 billion) of this back to its shareholders in a mixture of cash (just under 30 per cent of the total approximately $23.9 billion) and Verizon shares ($59.3 billion) under its so-called “return to value” programme.
As financial adviser Simon Shirley summarises: “Investors will end up with a reduction in their Vodafone shares, shares in Verizon and cash.”
It is the latest in a line of developments for investors who originally bought into the flotation of Eircom in 1999 and subsequently became shareholders in the British telecoms giant through its acquisition of Eircom’s mobile operation Eircell in 2000.
will I get?
This is the question to which everyone wants an answer.
Unfortunately, however, there is no exact answer to this at present, because the number of Verizon shares will only be fixed shortly before completion and their value will depend on their market value on the day they are issued.
But, Vodafone’s guidance is that if you take December 6th as a guide, you would have been entitled to $1.22 (€0.89) in Verizon shares and $0.49 (€0.36) in cash for each Vodafone share you held.
So, if you have 100 Vodafone shares, you could benefit to the tune of about €125.
The ultimate amount you receive will depend on the value of Verizon shares on the day of completion and the dollar/euro exchange rate. Vodafone expects to announce the exact number of Verizon shares you will be entitled to on February 19th and the cash amount on February 21st.
Is it a windfall?
For Brian Weber, executive director with Quilter Cheviot, the benefit of the deal is that it crystallises the value of the Verizon asset, which was probably not adequately reflected in the share price previously, for shareholders.
As Shirley adds: “It’s not a windfall. This is not like free money.” Rather it’s more of a share reorganisation which is akin to Vodafone distributing an extra dividend to shareholders.
Indeed, it is important to remember that share consolidation is also part of the transaction.
This allows Vodafone to return capital to its shareholders, without seeing its share price fall, as the number of shares in issue will fall.
So, in broad terms, two Vodafone shares will become just one after the transaction, although Vodafone cannot confirm the exact ratio until closer to the end of the transaction.
In effect, this will halve the value of the Vodafone shares you hold and will also mean that your dividend entitlements will reduce – although Vodafone has indicated that it expects to pay “a growing dividend per share and a good dividend yield”.
Vodafone’s interim dividend for 2014 of 3.53 pence will be paid on February 5th, and will be based on shareholders’ pre-consolidation shareholding. Its final dividend for 2014 will be paid in August – but this will be based on your shareholding after the transaction.