Cash-back, Sir!

Equity markets had a mixed day after the relative euphoria that greeted the combined comments from the UK and US central banks over the past couple of days. The FTSE 100 performance was probably not helped by Rolls Royce and Tate and Lyle missing earnings, both shares falling over 10% on the day. Even the announcement of Comcast's acquisition of Time Warner, a deal worth $45 billion, could not lift spirits. Earnings news in the US continues to be mixed as Proctor and Gamble announced weaker than expected numbers. Thursdays economic data in the US was also a little under whelming, the jobless number came in line with expectations but consumer confidence came in weaker than expected, I imagine the weather will get the blame.

The next major event from a shareholder perspective will be the Vodafone payout from the Verizon deal. In the next few weeks, Vodafone will be returning over £50 billion in a combination of cash and shares to shareholders. The total market capitalisation of the FTSE 100 is £1.5 trillion; I calculate that Vodafone will be returning approximately 3% of the total value of the index. A £50 billion company would make it into the top ten companies in the FTSE 100. One could argue that as the MPC has committed over £375 billion for asset purchases, this sum increases that number by over 10%.

Some I imagine will get spent in the shops, others will want to regain their exposure to the stock by reinvesting the money, I imagine others will want to diversify and invest in other assets, possibly other high yielding equities may benefit. Global funds that own Vodafone may well also already own Verizon shares and may wish to keep the newly issued Verizon shares, so not all the £50 billion will be recycled into the market. Many retail investors I would imagine will prefer to sell their Verizon shares and receive the extra cash. 

Vodafone’s share price is now back to where it was last October having performed in line with the sector. The date that the cheques will be dispatched to shareholders is the 4th of March.

Posted on February 14, 2014 .