* 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 (Reuters) – 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 All-Share.
“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 loss.
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 GlaxoSmithKline.
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 eye-watering”.
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.
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