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Bumper Vodafone sale to help UK stocks

A woman talks on her mobile phone as she walks past a Vodafone store in London September 2, 2013. REUTERS/Stefan Wermuth
A woman talks on her mobile phone as she walks past a Vodafone store in London September 2, 2013. REUTERS/Stefan Wermuth

By Chris Vellacott and Sinead Cruise

LONDON (Reuters) - Shares in other telecoms companies, stocks with high dividends and firms eyeing share sales may all get a boost when UK-focused fund managers redeploy cash from Vodafone's sale of Verizon Wireless.

Barclays , Lloyds Banking Group , BT Group could be among the London-listed beneficiaries when Vodafone shareholders get $84 billion from the sale of its stake in Verizon Wireless to Verizon Communications.

The money will be paid mostly in Verizon stock, which many managers of UK funds will sell because companies listed in the United States are outside their investment remit.

Shares in BT Group already rose around 3 percent on Monday in anticipation of the payout. Investors contacted by Reuters after the terms of the sale were unveiled said many would move the cash to other telecom stocks to maintain sector weightings.

"The money has to go somewhere. Automatically you go to the same sector first, to maintain some sort of exposure, then it might start to filter out," said Derek Mitchell, a senior UK equities fund manager at Royal London Asset Management.

Another investor and Vodafone shareholder, speaking anonymously, said Vodafone had been a popular choice among managers focusing on income over share price growth.

Vodafone has a dividend yield of 5.3 compared with an average of 2.56 percent among UK peers, boosted by hefty annual payouts in special dividends from Verizon.

"Vodafone was held mostly by the boring dividend funds ... you'll find a lot of the money goes into as many boring dividend plays as it can find because it's going to be very difficult to replace the specials (dividends)," the manager said.

Possible beneficiaries include big pharmaceuticals like AstraZeneca , which pays 6.3 percent and GlaxoSmithKline , which yields 5.05 percent, and large oil companies such as Royal Dutch Shell and BP , which pay out 5.6 percent and 5.8 percent respectively.

Another popular destination for Vodafone money could be state-backed lender Lloyds Banking Group , the investor said, as speculation mounts that it could reinstate its dividend at around 5 percent.

Vodafone payouts, expected early 2014, are likely to come too late for a government stake sale anticipated within weeks but the windfall should add momentum to demand for the shares nonetheless, the investor said.

"You won't get any money until Q1 2014. But there's a lot of money going into the bank sector. I think if Lloyds is going to be a 5 percenter and growing very fast, that might be a big receptor of Vodafone money," the fund manager said.

With so many fund firms set to receive a portion of the deal proceeds, mood among managers is buoyant at the beginning of a period of initial public offerings and share sales.

Barclays is poised to launch its 5.8 billion pounds rights issue later this month, while the private equity owner of estate agency Foxtons is also targeting a stock market debut within weeks.

"There are a whole lot of IPOs out there ... and a whole lot of other files on things that are being dusted down as bankers consider ‘let's try and get this away now, now that the market seems to be feeling better," RLAM's Mitchell said.

However, Neil Veitch, portfolio manager at SVM Asset Management and a Vodafone shareholder said fund firms would be unwise to rush into big spending sprees until the deal's final details are confirmed as investors do not yet know exactly how much paper they will get.

It is also not clear how many investors will be forced to sell their new U.S. stock quickly because they are limited to holding UK or European stocks.

"The wildcard in all of this will be the potential flowback of Verizon paper," Veitch said.

The bulk of the proceeds are likely to go to UK fund managers. Five of Vodafone's 10 largest shareholders are UK fund management institutions.

The biggest recipient of money for the Verizon stake will be fund management giant BlackRock's UK arm, which holds 6.95 percent of Vodafone and is its biggest shareholder. This could entitle it to up to $5.8 billion to be shared among its funds.

Other institutional investors awaiting large proceeds from the sale include Scottish Widows Investment Partnership, which has a 1.3 percent stake in Vodafone, and Standard Life Investments with 1.1 percent.

(Editing by Anna Willard)

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