Verizon and Vodafone Receive $8.5 Billion Dividend
Verizon Communications (NYSE:VZ) and Vodafone Group (LON:VOD), the co-owners of Verizon Wireless, are due to receive an $8.5 billion (£5.35 billion) dividend from their joint venture in 2012.
The payment will be made in one or more tranches and in proportion to the owners’ interest in the company. Verizon Communications owns 55 percent of the business and the remaining 45 percent belong to Vodafone.
This year’s dividend is lower compared to last year but still exceeds shareholders’ expectations and may come as a relief to Vodafone investors, who have less control over how much of the money is distributed because of their minority stake. Verizon Wireless, the largest US mobile operator, has been a cash-cow for the two companies with profit margins topping analysts’ estimates last quarter as smartphones sales boosted customers’ bills.
“Looks like early Christmas for shareholders,” said Todd Lowenstein, a fund manager at HighMark Capital Management. His firm oversees $17 billion (£10.7 billion) in investments, including Vodafone shares. “We were expecting about $7.5 billion [£4.72 billion],” he said.
**Vodafone Share Repurchase**
The UK-based telecoms group is planning on a £1.5 billion share repurchase after receiving the aforementioned $3.8 billion (£2.39 billion) cash dividend from its stake in Verizon Wireless. The mobile carrier is willing to return capital to shareholders despite its £5.9 billion of impairments and the resulting £492 million in interim pre-tax loss.
Vodafone pointed to the weakening macroeconomic environment as the cause for its “slightly below expectations” performance in the first half of the fiscal 2013. It also cautioned business conditions would be similar in the remaining half.
Service revenues, the income the carrier receives from customers who are using their mobiles to make calls or use the Internet, fell 18.1 percent across Southern Europe, led by a 19.3 percent drop in Spain and a decline of 18.4 percent in Italy.
The company also missed forecasts on earnings before interest, tax, depreciation and amortisation (EBITDA) of £6.6 billion, down 2.9 percent, and an EBITDA margin down 1 percentage point. These figures once again come as a result of weakness in the European business, with adjusted revenue in the UK falling by 3.2 percent and modest growth of 1.8 percent in Germany.
Shares in the mobile carrier have fallen by 4.85 percent from their Tuesday’s closing price to about £1.6127 as of 10.00 GMT.
Recent newspaper publications have placed Vodafone in a group of companies, including Starbucks, Google and Amazon, with very controversial tax affairs.
The mobile carrier paid £1.7 million of taxes on £1.88 billion worth of UK adjusted operating profit since 2007. Executives at the firm however said they see “no problem” because the tiny tax take was governed by rules set by the government and was due to Vodafone’s extensive investments in Britain’s mobile network.
According to the company the minimal corporation tax bill was not a result of tax avoidance but simply due to complex accounting rules, which allowed it to offset costs against operating profit.
The investment Vodafone is talking about is the £6 billion paid for a 3G license in 2000, which granted it a tax break valid for at least until 2020. The mobile carrier says it is still paying £1 million a day in interest for the money it borrowed to make the investment, plus another £1.5 million a day in developing the country’s mobile network and at the same time giving the Chancellor £700 million a year in other taxes.
“It is the Government that sets the rules on tax. We just apply the rules.” said Vittorio Colao, chief executive of Vodafone.