Today it was announced that Vodafone (VOD) will be selling its 45% stake in Verizon Wireless to Verizon Communications (VZ) for $130 billion. There is a lengthy press release with details, but I wanted to break down some of the implications of this deal for VOD shareholders such as myself. Note that what follows is my interpretation of the press release, which I cannot guarantee is completely accurate (feel free to leave a comment if I have misinterpreted or miscalculated anything). In addition, some of the numbers depend on fluctuating exchange rates and share prices, so the final numbers will likely be slightly different.
Overview: VOD shareholders will receive a "Return of Value" of $84 billion (71% of the net proceeds), which is equivalent to 112 pence per ordinary share. Of that total, $23.9 billion (28.5% of the Return of Value) will be in cash and the remaining $60.1 billion (71.5% of the Return of Value) will be in VZ shares. At the current exchange rate of £1 = $1.56, the Return of Value equals $1.75 per ordinary share. However, 1 ADR share = 10 ordinary shares, so the Return of Value equals $17.47 per ADR share.
Cash payment: Given that 28.5% of the Return of Value will be in cash (effectively a special dividend), shareholders will receive a payment of $4.97 per VOD ADR share.
Verizon shares: Given that 71.5% of the Return of Value will be in VZ shares, shareholders will get $12.50 in VZ shares per VOD ADR share. The exact number of shares received will depend on the price at which VZ shares are trading before the deal is completed, but the transaction is structured such that the price will not be less than $47 or more than $51 per share. Thus, VOD shareholders would own VZ shares in addition to their VOD shares. Verizon pays a decent dividend and today the company increased its quarterly dividend by 2.9% to $0.53 per share.
VOD dividend increase: VOD shareholders still get to keep their VOD shares and receive dividends for them. In the press release, Vodafone announced they plan to increase their dividend by 8% for 2014 and the Board "intends to grow it annually thereafter."
My Return of Value: Given that I own 125 shares of VOD, I should receive a special dividend of around $621 ($4.97 x 125) and between 30 ($12.50 x 125 / $51) and 33 ($12.50 x 125 / $47) shares of VZ. At the current dividend rate for VZ, that would result in quarterly dividends of $15.90-17.49 or annual dividend income of $63.60-69.96. Plus, I will continue to receive higher semi-annual dividends from VOD. Finally, I will likely see further capital appreciation of my VOD shares.
The deal is expected to be completed and the Return of Value realized in the first quarter of 2014. All in all, it sounds like a pretty good deal for VOD shareholders. Once the deal is completed, I will likely hold my VOD and VZ shares, unless I find compelling reasons to sell either or both positions.