Should Vodafone Group plc’s Shareholders Keep Their New Verizon Shares?

Should Vodafone Group plc’s (LON:VOD) shareholders sell or keep their new Verizon shares?

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With the biggest telecoms deal of the year under way, many UK investors are now left wondering what they should do with their share of the profits when the deal completes. 

That said, the deal is only currently in the early stages and investors should have a much clearer view of their options when Vodafone (LSE: VOD) (NASDAQ: VOD.US) distributes a circular to shareholders during December, which will detail all the relevant information.

However, Vodafone has already stated that the cash portion of the windfall will be via a B-share scheme. This means that investors will receive non-trade-able B-shares in lieu of cash. What’s more, the B-share organisation allows investors to cash the payout in as either income or capital gains, depending upon their tax status.  

With respect to the Verizon (NYSE: VZ.US) shares that investors are set to receive, any investors currently holding fewer than 50,000 Vodafone shares will be able to sell their new Verizon shares through a low-cost dealing service, offered by Vodafone and its bankers.

Unless investors already have a trading account linked to US dollars with all the relevant tax paperwork completed, this could be the best option.

Unfortunately, the process received from the sale of the shares through this method will be in US dollars. However, Vodafone has stated that investors can elect to receive the payout in Euros or Sterling — although this will be at additional expense.

What about keeping the Verizon holding?

For those investors who are considering holding on to their new Verizon shares, there could be further rewards down the road. Verizon is set to benefit significantly from this deal and it is estimated that the company’s cash flow will double almost overnight.

Moreover, Verizon’s earnings growth is already expected to exceed Vodafone’s over the next few years, excluding any synergies gained from the acquisition. Verizon’s earnings per share are predicted to grow 15% per annum for the next two years, meanwhile Vodafone’s earnings are pencilled in to grow at a snail’s pace of around 3.5% annually for the same period.

However, Verizon is set to take on $60 billion in debt for the deal, which will take the company’s overall debt up to $110 billion.

That said, Wall Street analysts predict that after the deal the company will have a debt-to-asset ratio of 31%, which is only slightly higher than Vodafone’s current debt-to-asset ratio of 29%.

Nonetheless, there is still the issue of taxation and while Verizon’s current dividend yield of 4.6% looks attractive, dividends are subject to US withholding tax, which currently stands at 30%.

Still, shareholders are able to reduce this rate to 15% by filling in the relevant paperwork but this is yet another layer of administration that could put off some investors.

Foolish summary

All in all, considering Verizon’s outlook for growth, those investors who are prepared to take on the extra administration, holding on to the Verizon shares could be a lucrative decision.  

Still, if you’re thinking of selling your new Verizon shares and wish to look for a new home for your cash, this exclusive wealth report reviews five great blue-chip names that offer a rich mix of defensive prospects, reliable growth and dependable dividends.

Just click here for this special dividend report — it’s free.

> Rupert does not own shares in any company mentioned. The Motley Fool has recommended shares in Vodafone.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

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