Verizon Wireless, the mobile-phone joint venture of Verizon Communications Inc (VZ) and Vodafone Group Plc (VOD), plans to pay a $7-billion dividend to its co-owners, in a bid to defuse tension between the two companies.
The company, which owns 55-per cent of the business, would receive $3.85 billion, while Vodafone, owner of the rest, would get $3.15 billion, a filing revealed yesterday. The dividend would be paid on 25 June.
Verizon Communications Inc chief executive officer Lowell McAdam in a recent meeting suggested that Verizon Wireless might not pay a distribution to its owners this year and rather favour debt repayment.
According to analysts, the payment would remove some pressure for Vodafone to agree to a sale.
As the minority investor, Vodafone has little control over the venture while its partner sets the dividend terms. The dividend policy, however, is discussed by the two partners at Verizon Wireless board meetings throughout the year.
According to Nomura analysts, Mike McCormack, Verizon had consistently said, and attempted to demonstrate, that they controlled Verizon Wireless, and by threatening to forego a distribution, then allowing it just 10 days later, Verizon seemed to be once again demonstrating their interest in pressuring Vodafone. Verizon, was effectively using the dividend to force Vodafone to sell its interest in the company. According to earlier reports the two companies were close to a $100 billion deal.
According to Citi analysts, the timing suggested no deal was imminent, but they still believed there was a better than a 50-50 chance of it happening.
Verizon Wireless, was created in 2000 with the merger of Bell Atlantic's and Vodafone's mobile businesses.
The company is the largest US carrier, followed by AT&T. Verizon looks at its cash flow and growing mobile customers as a way to supplement its declining land-line businesses and also help fund its own dividends to shareholders. The company paid out $18.5 billion in 2012.