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Vodafone Group (LSE: VOD) (NASDAQ: VOD.US) was big in the news last week, after finally agreeing to sell its 45% stake in Verizon Wireless to Verizon Communications, for $130bn in the third-largest deal in corporate history.
The two companies had been playing brinkmanship for some time, as Verizon sought to gain full control over its mobile communications arm, with the US giant at one stage threatening to not pay an annual dividend — which Vodafone very much wanted. Vodafone, for its part, has been getting close to and backing off from agreements for some time.
As long-term investors, we have no need to rush into decision when companies make life-changing moves like this. But now that the dust is settling, what does it mean for our portfolio?
The sale will net $59bn in cash, $60bn in Verizon shares, and some other assets. The Verizon shares will go straight to shareholders, who will also get $24bn of the cash — we’ll be handed stuff worth 112p per share some time during the first quarter of next year. Small shareholders who don’t want any Verizon shares will be able to sell them by a special facility that will be set up.
We have three options to choose between:
- Sell Vodafone now and profit from the recent price rise to 209p;
- Keep Vodafone, and take the cash and the Verizon shares;
- Keep Vodafone, sell the Verizon shares, keep the cash.
We don’t want a few odd shares in our portfolio that would cost too much to sell due to prohibitive dealing costs, so keeping the Verizon shares can be ruled out right away.
Has Vodafone changed?
One very good time to re-examine a holding is when a company significantly changes, so is this such a change? I’d say yes and no. On the one hand, Vodafone is selling off a big chunk of mobile telecoms business, and that’s usually the exact opposite of what a global mobile telecoms company should be doing!
But on the other hand, Vodafone wants to be in charge of its own destiny, and while getting 45% of the Verizon Wireless dividend every year is very nice, the total lack of control didn’t fit in with that. Instead, Vodafone wants capital to continue its profitable expansion in developing parts of the world, where there is still an awful lot of potential revenue to be had.
In short, I think the Verizon deal is in the best interests of both companies, and with the selling price that Vodafone achieved, it’s in our best interest as shareholders as well.
We’re not selling!
So, yes, you’ve already guessed what the decision is — we’re definitely keeping Vodafone in the portfolio, and we’ll sell our Verizon shares and take the cash instead.
In other news, GlaxoSmithKline (LSE: GSK) (NYSE: GSK.US) took a bit of a dip last week on the news that a trial of its MAGE-A3 cancer immunotherapeutic treatment “did not meet its first co-primary endpoint as it did not significantly extend disease-free survival“, although further tests will be carried out.
Glaxo shares have lost about 9% since July’s peak, to 1,597p today. But they’re still up on our entry price of 1,440.5p, and we thumb our noses at short-term volatility. We’re Holding.
Miners have continued on their erratic path, but Rio Tinto (LSE: RIO) shares have started to pick up again, reversing a recent mini-slide and climbing to 3,209p today. Rio shipped its first iron ore from its expanded operations in Australia last week, and others firms have been reporting strengthening demand for commodities. This is definitely not a time to be selling Rio Tinto, which also remains a very firm Hold.
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> Alan does not own any shares mentioned in this article. The Motley Fool has recommended shares in Vodafone and GlaxoSmithKline.
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