Vodafone Verizon windfall to hit London 'like a meteor'
But fruits of massive corporate deal will leave investors with a dilemma
THE fruits of one of the biggest deals in corporate history are about to land in London "like a meteor", says James Ashton in the London Evening Standard. Vodafone shareholders will receive a £50bn windfall following the sale of the phone giant's stake in the US behemoth Verizon Wireless – a cash injection compared by one institutional investor to "a corporate version of quantitative easing".
The windfall, which will be made up of one-third cash and the rest in Verizon shares, poses a dilemma for individual shareholders, says John Ficenec in the Daily Telegraph. Should they hold on to Vodafone and Verizon shares, or hunt down better opportunities? The pundits are split. But it's worth noting that if you were in Voda for the income (it was hitherto "one of the biggest and most reliable dividend stocks in the FTSE"), you can undoubtedly expect to see payments "fall by about half".
Many big institutional investors have no choice but to sell their Verizon shares, says Ed Bowsher on MoneyWeek.com. Passive FTSE-tracker funds can't hold a US-listed stock; and it won't fit the mandate of many active fund managers either. Where else will they put their spare cash? The most likely destination is high-yielding blue-chip stocks. On those grounds, SSE (yielding 5.99 per cent), HSBC (5.06 per cent) and Centrica (5.3 per cent) are among those whose shares could benefit. Analysts at Macquarie tip BT and BSkyB, yielding 3.2 per cent and 3.8 per cent respectively.
1999 and all that
The windfall has certainly helped fuel high spirits in the City, says Ian King in The Times. The FTSE 100 is poised "for another tilt at its all-time high" of 6,950 achieved in December 1999. But warning bells are already ringing in some quarters. "What we often overlook is that the FTSE 100 was up 6 per cent in 2012 and 14 per cent in 2013. So it's had a couple of good years already," says Richard Hunter of Hargreaves Lansdown. The rush of private equity houses to float companies at often "stretching" valuations certainly hints at frothiness, adds James Mackintosh in the Financial Times. "When the smartest guys in the room are selling, should we really be buying?"