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Ologhai Jones

Vodafone Verizon Payout

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I mess about with stocks, but other than superficially (stock prices, dividends) I don't really understand them.

I've just been reading that, now Vodafone has sold Verizon, they, Vodafone, will payout 112p per share during Q1 of 2014.

I have a few hundred Vodafone shares (bought a couple of years ago) in an ISA that I keep via an online broker.

Can anyone help fill in a few of the blanks for me? Will I need to do anything further with respect to the payout? Will my online broker simply credit the payout to my account in due course?

My current thinking is that I would probably want to sell the shares at some point. Do I have to hold onto the shares until the payout, or will those who were shareholders at the time of the Verizon sale receive their payout even if they're not shareholders by 2014?

I've also read something (why does more reading only decrease my understanding? ;)) that 'Vodafone will use a B-share scheme for the payout... There will be an option for Vodafone shareholders holding fewer than 50,000 shares to use a low cost dealing service to dispose of their Verizon shares."

At this point, I'm way out of my depth. Any non-investment-advice type information on how this situation will play out gratefully received. :)

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I've done some further reading, and I've found out that, to maintain the value of Vodafone shares as a result of the payout, there'll be a consolidation. So, the value of a share will be much the same as it is now, but the number of shares held by each shareholder will be reduced.

For example, if someone held a thousand Vodafone shares on the crucial date, the arithmetic might look something like this (and please do straighten me out if my understanding or my arithmetic is wrong):

Current approximate holding value: 1,000 shares x £2.00 = £2,000.00.

Payout: 1,000 shares x £1.12 = £1,120.00.

New value of consolidated shares (assuming 2:1): 500 shares x £2 = £1,000.00.

New net worth: £1,120.00 + £1,000.00 = £2,120.00.

'Profit' from payout = £2,120.00 - £2,000.00 = £120.00.

Hardly worth throwing a party for. Unless I misunderstand the consolidation idea?

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I too hold Vodafone shares in an ISA. However I sold them on the Verizon sale news as I don't want the hassle of dealing with Verizon shares (Vodafone shareholders will receive part of their payout in Verizon shares, Verizon is a US company listed on the US markets and therefore not eligible to be held within an ISA) plus I can't see Vodafone shares going up much more unless they become a bid target.

However, that's me being "admin averse", as you say there will be a simple mechanism for you to sell your Verizon shares once they are issued. However, you should also be aware that the big attraction of Vodafone in the past has been their generous dividend payout, even though the chairman has said the next dividend payment is safe there's no guarantee beyond that, and companies often use major events such as this to review and amend their dividend policies. I wouldn't be surprised to see a reduced yield on Vodafone dividends in the future.

What are the alternatives for your money within an ISA? Quite a few, it's still perfectly possible to build a solid ISA portfolio yielding over 5%, which in my view is a bit of a bargain (I've been investing for nearly forty years and there have been plenty of times when a yield of over 5% was completely unrealistic). You could look at BP or Shell, several insurance companies, HSBC, utilities, Glaxo, and several others. And if you're prepared to look outside the FTSE 100 there are even more opportunities, some of my personal favourtes are Costain, Smiths News, and Chesnara.

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There's a really good article about the deal on Testosterone Pit http://www.testoster...ie-verizon.html

In essence, the $130Bn purchase will be funded with $60Bn of Verizon stock handed to Vodafone plus the largest bond issues in history, $60Bn - 3 times as big as Apple was, but they will be paying higher rates than Apple secured. There's also $10Bn in available cash, which is already borrowed money.

Before the deal, the company had a negative tangible net value of -$72Bn, with goodwill and intangible assets of $106Bn. Liabilities are $183Bn. So Vodafone will have shares worth 30% of a company that it mired in debt. Bond buyers are clamouring to jack up the company debt because prices are a few crumbs above the rest of the market.

Looks like a rosy outlook to me.

Edited by Stainless Sam

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I think I was initially confused by MoneyWeek's coverage of this. In the 6th of September issue, it is reported as 'Vodafone shareholders [hitting] the jackpot,' leading me to believe initially that shareholders would somehow be substantially better off as a result of the sale of its Verizon stake.

It seems fairly clear now, though, that the payout (a special dividend plus Verizon shares) will more-or-less just compensate shareholders for the reduction in value of their Vodafone holding (either due to a substantial reduction in share price or a share consolidation).

What the hell are MoneyWeek playing at talking about 'jackpots'? What can they possibly mean?

Anyway, selling the shares right away (at around 210p) doesn't sound such a bad move now--for the 'admin adverse'. ;)

I'm 30+% up from when I bought them, so I'd be 'taking profits' as they say.

Any further thoughts?

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Hargreaves Lansdown published the best explanation I've seen. It'll be somewhere on their website, and has been reproduced in a few other places.

If you hold US shares, you should fill in a form W8-BEN for the US taxman, or else you get to pay 30% withholding tax on all dividends to the US govt.

With the W8-BEN the withholding tax drops to 15%.

If you hold the shares in an approved pension scheme, there is no withholding tax, so you get the divis tax-free (that's some kind of reciprocity: 'merkins don't pay tax on UK share divis in approved pension schemes).

In this instance, in case you don't want to hold VZ shares, there will be arrangements for small shareholders to take a cash alternative. Anyone with fewer than 50000 VOD shares counts as small for these purposes.

I topped up my VOD holding, on the grounds that with the re-rating implied by the deal it still looks cheap. Mine are inside the SIPP, so I can keep the VZ shares and enjoy tax-free divis :)

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For better or worse, I have sold my Vodafone shares today. I still don't think I fully understand how it would've worked out if I'd've waited for the cash and Verizon shares (and I actually contemplated holding onto them just to experience how it went, so I'd know for next time), but ended up deciding on the 'admin averse' route in the same way as silver surfer.

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