Vodafone in talks to sell stake in Verizon Wireless

A_Flock_Of_Sheep

planteria wrote: »

anyone any further thoughts re. the changes with Vodafone??

Well my lowly view is that having looked at it all now the dust has settled I won't be diving into the Vodafone punt.

I may invest in them when or if the the deal goes ahead and the share price has fallen. A fair value I have seen is 75p per share after the deal is done.

From what I can calculate the windfall basically compensates for the drop in share price after the deal.

planteria

i think Vodafone could do really well after selling it's VW stake...so i am inclined to hold. the VW shares will not be too small a lump, either, so i can imagine deciding to just retain those too....and then just decide what to invest the cash in:)

from mark's link:

"Dividends from Verizon shares will be taxed by the American authorities at 30pc, or 15pc if you hold the shares through a "qualified intermediary" such as Hargreaves. Holdings in pensions are exempt from the tax but those in Isas are not. Alternatively, you can sign a form called IRS W-8BEN that entitles you to a lower rate of tax."

is the IRS W-8BEN just for investors that own the shares unwrapped? i hold Vodafone in an HL ISA.

sabretoothtigger

I remember iii would not allow the w-8BEN form for holdings with them. hopefully they are less arrogant now

USA wont care which uk tax scheme you hold. I think it applies to all

planteria

don't get it stt....do we sign the form to influence the rate that the US deduct, and then our system here affects the tax position further?

Thrugelmir

Appears that VZ will yield around 4.5%. So if they are untaxed I will probably retain the holding in my SIPP.

mrobsessed

I hopped on the Vodaphone bandwagon when the rumours about Verizon started to emerge hoping to make a quick profit. Its the first time I've bought shares and now it seems I'll have to wait until jan-feb 2014 to see significant profit.

The price has hardly moved since the deal was anounced, so if I bought more wouldn't that be just as good as getting in early? Considering the large dividend that is anticipated why hasn't the share price gone up much more? If I bought 20K of Vod shares tomorrow wouldn't it just be a license to make a 50% profit in a few months?

Many thanks

bowlhead99

mrobsessed wrote: »

I hopped on the Vodaphone bandwagon when the rumours about Verizon started to emerge hoping to make a quick profit. Its the first time I've bought shares and now it seems I'll have to wait until jan-feb 2014 to see significant profit.

The price has hardly moved since the deal was anounced, so if I bought more wouldn't that be just as good as getting in early?

The price had been sitting at the 190p range for a few weeks when it jumped up to the 210p range overnight once the papers started seriously reporting that a deal was on the table a couple of weeks ago. Of course, people have been speculating for months/years on and off that a deal would be happening at some point. So some of it was in the price already. You could have picked them up in December at a low point of 160p and be 30% up by now (of course, that movement is driven by a range of factors not just the Verizon deal).

But basically, no, piling in at 210p plus is not 'just as good as getting in early'. The market is now expecting a transaction and the price reflects the fact that this is on the cards - although there is some upside, because the transaction has not actually happened yet and there is a risk the deal will not execute or that VOD's tax bill on their sale will be larger than thought, so the market is discounting some of the potential value until it sees it happen. Enough people are selling at 210p to cancel out the people buying at 210p and causes the market price to be 210p. If you could buy now and be guaranteed, say, 235p - nobody would sell and the price would be 235p.

Considering the large dividend that is anticipated why hasn't the share price gone up much more?

If this is your first foray into buying shares, be careful.

When a company pays 'normal' dividends they are basically giving shareholders the regular recurring profits that they have made over the year and do not need within the business. They pay out the cash and their business carries on as usual, and the share price goes down just a little bit to reflect the fact that previously you owned a company with high cash in its bank and now you have the cash yourself.

However, in this situation they are going to be selling a large part of their business and losing a very profitable revenue stream. They currently hold a valuable asset, but they will sell it, get a lot of cash in, pay some one-off tax on the profits they made on selling the asset vs what they paid for it, reinvest a few billion in improving the remaining business ,and give you back the spare cash. So yes, you get a dividend, but you have gone from owning a company with very valuable US assets and high reliable profits to owning a company with significantly fewer valuable assets with lower annual profits and the value of your share will plummet by a huge amount.

If I bought 20K of Vod shares tomorrow wouldn't it just be a license to make a 50% profit in a few months?

No, for the reason above. Nobody is really expecting to turn their 210p shares into 315p of value (remaining share price in a few months plus special dividend) as a result of the transaction.

Sure, the whole reason that the transaction will be done is because they felt the market valued the different components of the business as less than the sum of their individual parts. By selling off part of the business they can give you cash now from the US business rather than hope to make you cash in the future from the US business, and no doubt there is some upside available from the current share price because there's still a risk of something going wrong. However, this upside is more like 10-15%, than 50% !

At the moment VOD have a couple of deals on the table ; one to buy Kabel Deutschland for a few billion and one (much bigger) to sell their part of the Verizon Wireless JV. The German deal is hopefully a good move but I was reading yesterday that the shareholders of the sellers had not yet voted resoundingly for it. Hopefully just a formality for them to secure 75% approval by Wednesday but so far they only have 12%. Many won't vote until they have to, so a bit hard to tell.

But basically, because of the threat of transaction risks around their pipeline of activities, some would say the share price needs 20-25% upside potential to be compelling. Broker Jefferies said yesterday they see the upside as more like 12%. They gave it a 'hold' rating and a 216p target.

Sure, they have good long term potential if the European economy improves, but as a quick 'licence to make 50%', forget it. I may of course be wrong and just jealous as I sold out earlier this year. But basically if it was worth 50% more with low risk the market would already price it at something approaching that, today.

IronWolf

planteria wrote: »

don't get it stt....do we sign the form to influence the rate that the US deduct, and then our system here affects the tax position further?

US withholding tax is 30%. If you are in a country with a double taxation treaty like the UK you sign a form and declare it to the US, who reduce the withholding tax to 15%.

Because most people hold shares with a nominee account you need to submit the form via your broker and cant send it directly to the IRS unless your name is on the share register.

sabretoothtigger

the form is for USA but Im fairly certain they arent caring if you are ISA or not just are you legally british.
UK will charge CGT but for income tax Im not sure if 40% people have to pay more to uk. [On the basis it would be a good tax dodge, they probably do have to report it as income. ie. NYSE BP shares at 15% tax vs 40% in UK for holders would be too easy?]

I hopped on the Vodaphone bandwagon when the rumours about Verizon started to emerge hoping to make a quick profit.

Have your jeweler make this up in gold letters for you and it will earn its worth in memorandum
The markets Buy the rumour and sell the news.

You bought the news, now you must wait for further development upon that news. It could happen, they are making profits so the shares are generally going up as well as paying out income. There is some talk the smaller Voda could itself be taken over, just that particular rumour could bring a share price rise

planteria

from HL:

"Vodafone - what next?

Charlie Huggins | 24 September 2013

Vodafone - what next?
Earlier this month Vodafone finally agreed to sell its 45% stake in Verizon Wireless (VZW) to Verizon Communications, for US$130bn. Vodafone shareholders are set to receive a colossal $84.0 billion (£54.3 billion) from the deal in the form of cash (£15.4 billion) and Verizon shares (£38.9 billion), which is expected to happen in early 2014. The news has provided a welcome boost for the share price which is scaling 12 year highs.

Now the dust has settled it seems an opportune time to consider what this really means for Vodafone and its investors.

The end of an era
The deal marks the end of an often strained relationship between Vodafone and Verizon. It all began in 1999 when Vodafone acquired America's AirTouch and took a stake in a joint venture which would later become VZW.

The frustration for Vodafone and its shareholders has always been Verizon's controlling 55% stake in VZW. This has allowed Verizon to call the shots about what happens with VZW's enormous cash flows. In 2005 Verizon stopped dividend payments. Although dividends were resumed in 2012, Verizon CEO Lowell McAdam has regularly threatened to reduce or withdraw payments in an attempt to pressure Vodafone to part with its 45% stake in VZW. He seems to have got his wish, although it has to be said the deal looks to suit both parties.

Is this deal good news for Vodafone and its shareholders?
Only time will tell, but as an Analyst and Shareholder in Vodafone I have thought about this long and hard. I think there are several reasons to be positive about the deal:

1. The price is right – Vodafone's management has received widespread praise for extracting a premium valuation for their stake in VZW (Verizon originally offered $100bn). The timing could also prove shrewd with competition in the US mobile market intensifying.

2. Fire-power for acquisitions. The deal provides a war chest for Vodafone to pursue acquisitions.Vodafone is looking to expand beyond voice and text into data and other communications services as consumers increasingly look to one provider for phone, fixed-line broadband and TV. It has already signaled its intentions by purchasing broadband and pay-TV firm Kabel Deutschland in June. Further acquisitions could allow Vodafone to continue to exploit this growth market.

The deal also provides ammunition for further acquisitions in emerging markets, which accounted for 29% of Vodafone's service revenue last year and are a key part of the company's growth strategy.

3. Increased investment - the company has announced a £6 billion investment programme over the next three years to expand and enhance its network coverage and improve the customer experience.

4. Improved cash flows and shareholder returns – The deal means Vodafone will have greater control over its cash flows as it will no longer have to rely on dividend payments from Verizon Wireless. This should underpin the company's strategy of growing dividend pay outs. Vodafone has already committed to increasing its dividend by 8% in the next financial year and intends to increase the dividend annually thereafter.

5. Vodafone could become an acquisition target - AT&T - the largest provider both of mobile and fixed-line telephony in the United States is mooted as a possible bidder. The company seems to have the firepower to table a bid and has already expressed an interest in Europe, making Vodafone a prime target.

However I would also sound a few words of caution:

1. Sceptics argue that Vodafone is losing the most promising part of its business. The US mobile market has traditionally been a strong area of growth.

2. An acquisition-led strategy can be dangerous and Vodafone has a somewhat chequered track record in this regard. 13 years ago (under a previous CEO) it acquired Germany's Mannesmann for £112 bn, the largest M&A deal of all time. Four years later the deal was subject to huge write-downs.

3. The group's European operation remains under considerable pressure, both from the depressed economic environment and competitive influences.

4. Possible tax implications – Vodafone expects the deal to trigger a $5.0bn Capital Gains Tax (CGT) charge, relatively modest compared to the size of the deal. However this figure is not set in stone and according to analysts at Societe Generale the CGT remains the 'elephant in the room'.

The verdict
I think it is hard to predict whether the company will be better off without Verizon Wireless – much will depend on whether it spends the proceeds wisely and can successfully execute its growth strategy through sensible acquisitions and well-targeted organic investments.

The question is - do I have enough confidence to continue holding the shares following the disposal, or, should I cash in my chips?

On balance I am happy to keep hold of my shares. This is not because I expect the Verizon deal to be of great benefit to the company (it might or might not be) but rather that my original reasons for purchasing the shares (namely an attractive and growing dividend) remain intact.

The company has an exceptional dividend track record – it has paid a dividend every year since 1989 and has increased pay outs every year since 2000. I expect the company to continue to increase its dividend in the future - indeed the dividend outlook is arguably more stable following the disposal of Verizon Wireless as the company will no longer be relying on cash payments from Verizon to sustain dividend payments. The current yield of around 5% (variable and not guaranteed) also remains attractive; (the yield is expected to be similar after the disposal).

Perversely, the company's well publicised problems due to Europe's economic woes also offer a degree of comfort, by continuing to cast a shadow over the share price. The shares are not as cheap as they were but a price/earnings ratio (P/E) of 13.4 means they are still trading at a discount to the wider FTSE 100 index (P/E of 15). The share price has the potential to rise significantly if and when the situation in Europe improves.

While I acknowledge the risks associated with the deal and the current challenges faced by the business I believe that Vodafone will continue to prove to be a rewarding long-term investment, although there are no guarantees. It seems the market also agrees with the current consensus amongst analysts rating the shares as a buy."