Stephen Foley: Verizon sends a $4.5bn cheque Vodafone's way, and it won't be the last

 

US Outlook: Vodafone has been standing there with its little porridge bowl saying, "Please, sir, can I have some more" for so long, the dollop that just landed was bound to warm investors' hearts.

So it should. Although Verizon Wireless, the US mobile operator 45 per cent-owned by Vodafone, was at pains to describe its $10bn dividend as a one-off, there seems little doubt this is the start of a much more significant disbursement.

After six years of trying to starve out its partner – which included a cheeky bid for Vodafone's stake in 2006, bravely but correctly rejected by the Brits – Verizon Communications, which owns the other 55 per cent, has consented to Verizon Wireless paying a dividend up to two parents. Of Vodafone's share, $4.5bn (£2.8bn), it will hand £2bn to its shareholders as a special dividend of 4p per share. The stock was up4 per cent to 172p yesterday on the news, which came late Thursday.

It is not just the UK telecoms giant and its shareholders who have been hungry. New York-based Verizon Communications has been eating through its cashflows in an attempt to turn its staid old fixed-line business into a major nationwide player in high-speed, high-definition cable TV. Where I live in Manhattan, it's the stuff of neighbourhood jealousies: "Has your apartment building been hooked up to Verizon FiOS yet?" The investment is worth it, but the most recent results show it will take a while to pay off fully. On top of that, the old Verizon pension fund has needed topping up.

Vodafone investors banked the special dividend news, but do not appear to have priced-in a steady stream of dividend income from Verizon Wireless , which dominates the US mobile market. It has withstood a couple of years where Apple's iPhone was available exclusively on the AT&T network, and has been offering the gadget itself since February. Growth prospects look strong, as smartphones proliferate and US consumers get used to tiered pricing for data instead of the all-you-can-eat plans that were threatening industry profits.

All of which is to say that Vodafone need be in no hurry to divest itself of its Verizon Wireless stake. Verizon Communications is the only game in town when it comes to a potential buyer, and is hardly in a position to pay cash. A tax-efficient all-share deal is the logical outcome, but Vodafone's shareholders already hate having so much capital tied up in an overseas mobile venture they don't control. Even less palatable is the idea of owning a 30-odd per cent stake in a US fixed-line company, shouldering that risk for the several years it would most likely take to divest.

Vodafone boss Vittorio Colao has mercifully unwound most of his predecessors' spree of purchases of minority stakes in overseas groups, the strange legacy of dot.com era notions of global integration and empire building. But he can settle comfortably now into ownership of his 45 per cent stake in Verizon Wireless.

Sit back and cash the cheques.

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