More than £10bn is expected to find its way into British equities following the sale of Vodafone's stake in Verizon Wireless in March, with companies such as BP, HSBC, and BT likely to benefit from market participants eyeing similarly high-yielding stocks.
Vodafone on 19 February said its shareholders would receive 0.026 shares in Verizon Communications for each Vodafone share, part of the promised £51bn ($85bn, €62bn) return following the sale of the British group's stake in Verizon Wireless.
The company provided an illustrative example. It said each investor would receive a total of 102p per Vodafone share, comprising 72p in Verizon stock and 30p in cash.
Details of the cash payout would be announced on 21 February.
Vodafone shares would be consolidated on February 24 at the ratio of six new shares for every 11 existing shares, following the closure of the deal on 21 February.
The shares would be awarded next week and the cash on March 4.
Vodafone is one of the most widely held stocks in the UK, accounting for nearly 6% of the average FTSE 100 tracker fund. Therefore a large number of investors would have cash to redistribute.
About £10bn would be amassed by index trackers that can only invest in FTSE stocks, according to Citi.
The selling of Verizon shares from FTSE passive funds is expected on 24 February, which would be quickly reallocated in the index.
Several times more cash would be paid to active investors, who could wait for the right market conditions to reinvest their gains.
Citi said that this could mean that the benefits of the payout would extend over several months. As such, the funds could benefit the large number of firms planning stock market flotations or equity raisings over the next two financial quarters.
The biggest beneficiary is expected to be Vodafone itself, according to analysts.
Other firms most likely to benefit include BP, HSBC, GlaxoSmithKline and Royal Dutch Shell, according to Citi.
Nick Wills, head of Citi's portfolio trading team, said the larger FTSE 100 companies stand to gain first and that money would eventually "trickle down" into the FTSE 250.
"It is such a big holding for most investors that it will not go into only one stock. We expect the high income, defensive names to do well, alongside stocks such as HSBC, BP and UK miners. Most UK investors will need to sell the Verizon stake," Wills told the Financial Times.
At the minimum, Citi expects about 186 million Verizon shares to be sold by active non-US funds, which would result in $12.5bn reinvested in FTSE 100 constituents.
However, Citi's upper estimate assumes 387 million shares sold and $26bn reinvested in the FTSE. There would also be a large amount of cash – between $4.6bn and $13bn – reinvested in the MSCI Europe index, according to Citi.
Citi also expects forex trade by passive funds that would buy sterling and sell US dollars of about $2.4bn on the close of 21 February and $5.1bn on the close of 25 February.
Analysts at Macquarie estimate that about a fifth of the £51bn would be recycled back into British equities – about £2.9bn in cash and £7.3bn in Verizon shares needing to be sold – supporting high-yielding media and telecoms companies.
The companies to benefit the most include BT and BSkyB, according to Macquarie, given their large free floats and yields of 3.2% and 3.8%.
Macquarie also named TalkTalk as a beneficiary, alongside media sector firms Informa and Pearson, which have the strongest yields at 4.1% and 4.4%.