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May 15, 2013

Surprise! Verizon Wireless to Give Parent Companies $7 Billion

By Nicole Spector, Contributing Writer

If only every child were so benevolent to its parents!

Verizon Wireless (News - Alert), the top dog U.S. mobile service provider, has announced that it will pay its parent companies – Verizon Communications and Vodafone Group Plc – a dividend of $7 billion in June, Reuters (News - Alert) reports.



The news surprised some analysts, who were not expecting such a large figure in the payout. The Verizon Wireless board decided on the dividend on May 9, according to a filing the company made with regulators.

Verizon has announced news of the dividend amid rumors that Verizon could buy Vodafone's (News - Alert) stake in the venture if they can agree on a price.

On April 24, Reuters reported that Verizon was preparing a $100 billion bid for the stake. Investors have voiced that they anticipate Vodafone will hold out for a higher price.

Recently, Verizon chief executive Lowell McAdam (News - Alert) told JP Morgan analysts that he did not want to pay a premium for the stake and that the two owners could face a “lean” year in regards to the Verizon Wireless dividend.

In response to the news of the $7 billion dividend, which is made payable on June 25, Evercore analyst Jonathan Schildkraut remarked, “I wouldn't call that lean.”

Verizon hasn't said whether it's lean or fat – having declined to comment further on the news.

Schildkraut admitted that the dividend decision surprised him, as he had figured that the executive of Verizon wanted to put pressure on Vodafone to agree to a deal. What's more, Schildkraut reasons, Verizon does not appear to be in any dire need of more money.

“Despite more contentious commentary from Verizon management, it just does not appear that withholding Verizon Wireless cash flow from Vodafone is likely to be part of the negotiation,” Schildkraut said.

Verizon Wireless' last dividend to its parents was an $8.5 billion payout in the end of 2012. That followed a $10 billion payout made in the start of the same year.

Verizon had dismissed the notion of sanctioning a dividend from the Wireless asset between 2005 and 2011, reasoning that it preferred to pay down debt and make acquisitions instead.

During this time, analysts perceived Verizon's stance as a move to pressure Vodafone out of the venture.

Verizon's has a 55 percent stake in the venture, while Vodafone has 45 percent ownership. The June payout will bring Verizon cash payments of $3.85 billion while Vodafone will receive $3.15 billion.




Edited by Rory J. Thompson
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