Key Points:
· Vodafone’s weight will drop in all major indices. In FTSE 100 from 6.5% to 3.8%, FTSE All Share from 5.3% to 3.1%, MSCI Europe from 2.1% to 1%.
· Indexers will receive VZ shares (in CDI form) and cash dividend which will be reinvested by passive funds in the entire index (including Vodafone).
· The exact number of VZ shares and the consolidation ratio are expected to be announced on the 19th of Feb with the amount of cash to be received to be announced on the 21st of Feb.
· Reinvestment trade corresponding in FTSE UK indices, expected over two dates:
o close of Fri 21st Feb with $2.1bn, 25 % of ADV of the FTSE100
o close of Tue 25th Feb with $5.1bn, 50% of ADV of the FTSE100
· Reinvestment trade for MSCI on close of the 24th, with $3.7bn reinvested across EAFE/Europe/Kokusai indices
· Selling of Verizon shares from FTSE passive funds is due on Feb 24th using NYSE 24th closing price and VZ being removed from the index on the 25th close using the WM/Reuters FX of 4pm (GMT) of that day.
· The passive FTSE flow is expected to be netted with US based funds having to buy at the same time (24th close). We expected a net buy of 15 mm VZ shares 90% ADV on the 24th.
· Timing of active fund flow will be key. Given that the cash from VZ to VOD holders will be distributed on the 4th of March, we do not expect all active funds to reinvest it in their benchmark (if they decided to) at the same time as the passive tracker funds on the 24th.
· However, the active flow could be significant for both VZ and the UK market during the month
o Our base case1 scenario assumes 186m shares of VZ to be sold by active (non US) funds and $12.5bn reinvested in FTSE100 names (164% of the FTSE100 ADV)
o Our upper estimate assumes 387mil shares of VZ could be sold by active and $26bn reinvested in FTSE 100 names (341%)
· We expect an FX trade by passive funds (buy GBP/Sell USD) on the close of the 21st representing around $2.4bil and on the close of the 25th Feb representing $5.1bn (based on the WM/Reuters FX of 4pm London time). This is around 2 times and 4.3 times (respectively) the normal “month end” WMR closing turnover.