Bumper Vodafone sale to help UK stocks

By Chris Vellacott and Sinead Cruise

LONDON, Sept 3 (Reuters) - Shares in other telecomscompanies, stocks with high dividends and firms eyeing sharesales may all get a boost when UK-focused fund managers redeploycash from Vodafone's sale of Verizon Wireless.

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

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

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

"The money has to go somewhere. Automatically you go to thesame sector first, to maintain some sort of exposure, then itmight start to filter out," said Derek Mitchell, a senior UKequities fund manager at Royal London Asset Management.

Another investor and Vodafone shareholder, speakinganonymously, said Vodafone had been a popular choice amongmanagers focusing on income over share price growth.

Vodafone has a dividend yield of 5.3 compared with anaverage of 2.56 percent among UK peers, boosted by hefty annualpayouts 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 dividendplays as it can find because it's going to be very difficult toreplace the specials (dividends)," the manager said.

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

Another popular destination for Vodafone money could bestate-backed lender Lloyds Banking Group, the investorsaid, as speculation mounts that it could reinstate its dividendat around 5 percent.

Vodafone payouts, expected early 2014, are likely to cometoo late for a government stake sale anticipated within weeksbut the windfall should add momentum to demand for the sharesnonetheless, the investor said.

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

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

Barclays is poised to launch its 5.8 billion poundsrights issue later this month, while the private equity owner ofestate agency Foxtons is also targeting a stock market debutwithin weeks.

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

However, Neil Veitch, portfolio manager at SVM AssetManagement and a Vodafone shareholder said fund firms would beunwise to rush into big spending sprees until the deal's finaldetails are confirmed as investors do not yet know exactly howmuch paper they will get.

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

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

The bulk of the proceeds are likely to go to UK fundmanagers. Five of Vodafone's 10 largest shareholders are UK fundmanagement institutions.

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

Other institutional investors awaiting large proceeds fromthe sale include Scottish Widows Investment Partnership, whichhas a 1.3 percent stake in Vodafone, and Standard LifeInvestments with 1.1 percent.