Vodafone/Verizon: Hargreaves Lansdown issues note on timetable, tax position and market outlook

21st January 2014

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Hargreaves Lansdown has sent out a briefing note for investors detailing the timetable for the Vodafone split from Verizon and subsequent shares and cash payouts to investors.

Verizon posted very good numbers in the US as Forbes reported today.

The firm saw fourth quarter profits of $5.1bn and revenue of $31.1bn in fourth quarter revenue, a 3.4% increase over the same time last year and just above analysts’ expectations. Earnings were a 66 cents per share.

It is certainly not bad news for shareholders in Vodafone who are awaiting their distribution of a dividend and shares. But it remains to be seen whether they will be convinced to hold on to their shares.

The timetable runs as follows:

On 28 January – proposals subject to shareholder approval at a general meeting

21 February – hearings which should result in court approval

24 February – dealings in “new” Vodafone and “new” Verizon shares expected to commence

5 March – cash payments for the “Return of Value”/special dividend expected to be paid

Hargreaves says that subject to how the shares are held (SIPP/ISA/certificated or nominee outside tax wrapper) and the election the shareholder makes as to how they have their “Return of Value” treated (Capital Gains Tax or Income Tax – if applicable), the broad options are as follows:

Do nothing: the investor will then hold Vodafone  shares, Verizon shares and will receive a cash payment – these three added together should equate, all things being equal, to the current value of the Vodafone holding

Reinvest the cash payment into Vodafone

Reinvest the cash payment into Vodafone. On the basis that a withholding tax form (W8BEN) form needs to be completed and only a small amount of Verizon shares received, so some investors may consider the Verizon holding uneconomical and decide to sell the stake using one of the low cost share dealing services in place (HL mentions its own – such as through its flat £5.95 commission, offer runs from 24 February until 7 March 2014).

Hargreaves also detailed the market consensus about the two firms.

 Verizon

The current market consensus for the shares is a strong buy. Today’s update will likely do little to upset the general market view, with the company reporting fourth quarter profits of $5.1 billion, as compared to a loss of $4.2 billion in the same quarter a year ago. In addition, overall revenues for the quarter grew 3.4% to $31.1 billion, whilst the company ended the year with 103 million retail connections. The deal acquiring Vodafone’s 45% stake in Verizon Wireless is seen to be strategically transformative, whilst its announcement of the further purchase of Intel’s pay TV start up should enhance its video over high speed connections presence.

Concerns over the intensity of competition in the sector and the increasing significance of smartphones have tended to hold the shares back somewhat, although Verizon has still managed to post a 15% hike in its share price over the last year.

Vodafone

The current market consensus is that the shares are a buy. Despite some trading issues in parts of Europe, India and the fiercely competitive nature of the industry, the general view is that Vodafone remains a longer term positive prospect, resulting in a 48% hike in the share price over the last year, as compared to an 11% rise in the wider FTSE100.

The potential war chest Vodafone will be acquiring following the Verizon disposal (it is returning only an estimated £54 billion of the £84 billion stake) could position it for further acquisitions such as the recently completed Kabel Deutschland deal. Recent market speculation regarding some kind of tie up with BSkyB to fend off the BT broadband assault has excited investors, as has the fact that after the Verizon sale, even Vodafone itself could become a target for a behemoth such as AT&T.

From an investment perspective the current dividend yield of 4.1% is punchy and it will be interesting to see the company’s attitude to its historically progressive policy when the dust from the deal settles.

Vodafone’s Q3 numbers are expected in the week commencing 3 February

Tax situation

The table below is a very broad summary of the tax situation for UK investors – as such, it is a general guide and not tax advice. The firm says investors should check their own tax position before proceeding.

Can Verizon shares be held? CGT implications? Income Tax implications?
SIPP Yes None None
ISA Yes None Yes – treated as shares and therefore subject to 30% withholding tax or 15% via W8BEN
Share account Yes Yes As for ISA above

 

Read more: Earlier this week Brewin Dolphin suggested that following the separation that Vodafone could be bought by AT&T

 

 

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