* U.S. joint venture exit to return billions to UK market
* Citi estimates minimum $8 bln to return to UK by end-Feb
* FTSE 100 could get a 2-3 pct boost, buck 2014 lag
* Vodafone may fall if funds hold too much vs index weight
By Simon Jessop and Sudip Kar-Gupta
LONDON, Feb 11 Britain's sluggish stock market
could get a boost as Vodafone investors sell the Verizon
shares they acquired through a $130 billion buyout of the
telecom's U.S. joint venture.
Verizon's takeover of Verizon Wireless, the third-biggest
deal in corporate history, tees up an $84 billion payout in cash
and shares at the end of February, which many may look to
reinvest in UK stocks.
The market impact will ripple through currencies, funding
markets, cash markets and derivatives, and could boost prices
for stocks ranging from Vodafone's sector peer BT to the
smallest stocks in the FTSE All-Share index.
The UK funds which hold many Vodafone shares often have a
remit to invest in UK companies, either actively or by passively
tracking indices such as the FTSE 100 or the FTSE
"For some of these funds, it could be 2-3 percent of their
fund's AuM (assets under management) returned to them in cash.
Their mandates might dictate that this is too much for them not
to reinvest it straight away," said Ben Lynch, Citi's Global
Head of Centralised Risk Trading.
While the impact is hard to gauge, some estimate the FTSE
100 could gain as much as 3 percent from the flow and
move back into profit for the year from its current 1.5 percent
On Feb. 19, the cash/stock ratio for the deal is announced
and on Feb. 21, Vodafone shareholders will get a cash tranche
amounting to 30 percent of the deal total in dollars, which UK
holders may need to convert to pounds and reinvest.
While active managers can begin positioning straight away,
FTSE trackers will have to wait until Feb. 25 before reinvesting
the proceeds of the share portion of the deal.
Given that, and the fact the cash portion does not clear
until early March, some may choose to buy FTSE futures before
exchanging into a cash position later, Lynch said.
How much of that money comes back to the UK market is not
absolute, but Lynch said "at a minimum that's about $8 billion"
from European passive investors "but it could quickly get up to
$35 billion over those two tranches", dependent on what active
funds choose to do.
Which companies get a slice of the pie and how that affects
their share price will depend on who is spending and when.
Income funds, for example, may look to replicate the bumper
dividend yield offered by Vodafone by investing in large
blue-chips such as BP, Royal Dutch Shell and
Peter Botham, chief investment officer at Brown Shipley,
which manages around 3.5 billion pounds, said "the vast majority
of private clients" would likely make such a play.
As well as influencing the dollar-pound exchange rate,
options pricing in currencies, stocks and indexes, it could also
result in Vodafone being sold off if some funds end up owning
too much of the stock relative to its index weight.
Hobart Capital director Justin Haque recommended buying the
FTSE 100 while selling dollars and Vodafone and Verizon shares,
adding in a note to clients that "the money shift will be
Those who track or benchmark themselves against the FTSE
All-Share index, meanwhile, may look to bump up their holdings
in smaller companies, many of which have relatively low traded
volumes and could therefore get a proportionately bigger boost.
Others, particularly active fund managers, may choose to
park the funds in cash and wait for better opportunities, such
as a potential Lloyds Banking Group share sale in March
or April, said Lynch.