Vodafone to Get ₤2.1 Billion Dividend from JV with Verizon

on May 14, 2013

Verizon Wireless, the largest U.S. mobile operator by subscribers, intends to distribute a $7 billion (₤4.57 billion) dividend to its corporate parents – Vodafone (LON:VOD) and Verizon Communications (NYSE:VZ).

Vodafone, which owns 45 percent of the joint venture, would receive $3.15 billion (₤2.1 billion), while Verizon Communications, owner of the rest of the business, would get $3.85 billion (₤2.52 billion). The dividend will be paid on June 25.
Vodafone would update shareholders and investors on how it plans to use the money when it publishes its full-year results on May 21, the UK mobile phone operator said in a statement on Monday, May 13.

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Verizon Communications has been aggressively pushing Vodafone to sell its stake in Verizon Wireless. The majority owner, which has been aiming to take full control of the business for years, said earlier this month that it would be a “willing purchaser” of the holding. According to media reports, the U.S. group has hired bankers and lawyers to prepare a possible offer.

The dividend is seen as a surprise following recent remarks by Lowell McAdam, Verizon Communications’ chief executive, which have been interpreted as suggesting that the company might seek to suspend the distribution payments in order to pressure Vodafone into sale negotiations. As a minority shareholder, the UK group has no saying on dividend payouts but it still pocketed dividends totalling about $8 billion (₤5.23 billion) last year, the first since 2005.

“The announcement may be read in many different ways, but it is hard to escape the view that it smacks of stalemate, with Verizon taking its chips off the table,” Robin Bienenstock, a Sanford C. Bernstein analyst, has said, as quoted by Bloomberg. “Vodafone’s best asset is offering a diminishing cash return, and diminishing pass through as Vodafone’s ailing European operations absorb more of the cash.”

According to Bienenstock, some shareholders who were expecting payouts of more than $11 billion (₤7.2 billion), may be disappointed by the value of the announced dividend. Vodafone’s share price fell by 0.78 percent to ₤1.92 in intraday trading in London on Tuesday.
Although Vodafone’s chief financial officer Andy Halford said last month that the company was not relying on the payouts from its U.S. venture to meet its own dividend requirement, Deutsche Bank analyst David Wright has said that the distribution is “essential, especially when also considering the incremental debt from recent spectrum purchases and the need to reinvest in fixed-line assets throughout Europe.”
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Verizon is believed to be willing to pay $100 billion (₤65.32 billion) in stock and cash for Vodafone’s share in Verizon Wireless. Vodafone has reportedly been angling for a higher price and Jeffries analysts have mentioned the figure of $135 billion (₤88.2 billion) as much closer to being an acceptable amount for Vodafone’s board.
A potential sale can generate a huge cash influx for Vodafone’s shareholders, with the rest of the proceeds going into the company’s European network. A sale will also provide Vodafone with a clean exit from the U.S. market, where increased competition has forced mobile operators to cut their prices.
**The Vodafone share price was ₤1.9192 as of 14.05.2013, 12.20 GMT.**
**The Verizon share price was $52.99 as of 14.05.2013, 12.20 GMT.**


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