Around £54bn is to be returned to Vodafone shareholders through a mixture of a special dividend and a holding in Verizon shares. This equates to 112p per share – 32p in the form of a special dividend, plus 80p in Verizon shares.
The deal is expected to be completed in the first quarter of 2014, preceded by a shareholder circular to be sent in December 2013.
Richard Hunter, head of equities at Hargreaves Lansdown, says the structure of the deal presents Vodafone shareholders with a number of options.
"If the investor does not wish to continue with the current holding following the announcement, it is simply a case of selling Vodafone shares in the normal way," explained Hunter.
"For those wishing to continue, there are two immediate questions – what to do with the special dividend proceeds and also the newly acquired Verizon stake."
Investors could take the special dividend in cash, which will be subject to tax if held outside an ISA or SIPP. Alternatively, the dividend could be reinvested into Vodafone shares, or indeed Verizon if the investor is positive about the prospects for that company.
In addition, Vodafone shareholders holding fewer than 50,000 stocks with the means of realising the value of their Verizon shares at completion can do so in a "straightforward and cost-effective manner".
"This would be through a dealing facility – Verizon will make arrangements to provide shareholders with CREST Depositary Interest (CDIs) and related facilities to allow settlement of trading in Verizon shares through CREST," Hunter said.
He explains that holding onto Verizon results in a higher rate of tax for the UK, though this effect is minimised if the investor is holding shares through an industry professional.
"US-sourced income such as interest paid by US companies or any dividends from Verizon shares will be taxed at source at 30 per cent," he said.
"However, if investors hold their shares through a qualified intermediary, a reduced rate of tax will apply."
While many investors are likely to sell their Verizon shares, Hunter says the case for holding on to them is compelling – as is the case for buying Vodafone.
"The current market consensus on Wall Street is that the shares are a 'buy'," he said.
"Verizon Communications may not be a name well known to UK investors, but is a major player in the US. Not surprisingly, it is also pleased with the transaction on a number of fronts."
"It will no longer, for example, need to consult another party on strategic decisions, which may give it a more nimble, competitive edge; it will free up cash in no longer paying out the Vodafone dividend, which in turn should boost quarterly earnings. This reiterates Verizon’s confidence in prospects in its home market."
Hunter says the income prospects for Vodafone are particularly appealing.
"Vodafone has announced an 8 per cent increase in the dividend for the full 2014 financial year to 11p and to grow it thereafter," he said.
"In addition, the company intends to consolidate the new shares in order to 'seek to maintain broad comparability' of its share price following the disposal. As such, in theory the dividend yield could continue to be similar to the one currently seen."
For those who are unsure about Verizon but who want to stay exposed to the telecoms market, Nicholas Lowson, US equities analyst at Kleinwort Benson, offers some suggestions.
"In terms of the cash return, investors wanting to stay exposed to the telecoms market should consider Inmarsat, which will benefit from the increasing need for global connectivity in the maritime and aviation sectors and will benefit from the potential resumption of payments from its US spectrum assets," he said.
"Vodafone shareholders will also end up with large Verizon holdings. Verizon may have got rid of its Vodafone encumbrance but it also has much more debt."
"Investors who want to stay in the North American market should instead consider Canadian telecoms company Telus. It has good growth prospects and now, thanks to the Vodafone/Verizon deal, an improved Canadian competitive landscape."
