Vodafone to Verizon: Pay, Buy or Merge – Your Call!

Verizon Wireless is the child of a joint venture between Verizon Communications and Vodafone, but it appears that the parent on the other side of the Atlantic wants to change the custody arrangement. The Financial Times reported this weekend that Vodafone, which owns a 45 percent stake in the venture, is putting pressure on Verizon Communications to pony up some cash — the result of which could lead to a merger between the two.

Up until 2005, Verizon Wireless paid a cash dividend to Vodafone shareholders; then it stopped, saying it needed to pay down debt. But with the debt repayments scheduled to end soon, Vodafone is putting the pressure on. The British communications firm, says it wants cash rather than the paper gain associated with the increase in value of its Verizon Wireless stake. Vodafone has been angling for a return of the dividend for a while, but the Financial Times offers up analyst commentary showing that because of faltering performance at Verizon Communications, Vodafone may now hold the upper hand in this battle. The FT reports:

Verizon Communications paid a dividend worth $5.3bn in 2009 and Bernstein analysts said that problems at the US group’s fixed-line phone business meant that it will need to tap Verizon Wireless’ cash so as to maintain its shareholder remuneration.

Craig Moffett and Robin Bienenstock, who cover US and European telecoms companies respectively for Bernstein, said in a research note: “For Verizon, time is running out. Vittorio Colao holds the cards. And he seems to know it.”

This leaves the parent companies with three options: Verizon Wireless resumes its dividend payments, Vodafone and Verizon Communications merge or Vodafone sells its stake in Verizon Wireless. The analysts above think a dividend is coming, especially since Verizon Communications maintains that it could pay out its own dividend in 2010 and 2011 without any help from the Verizon Wireless unit. Vodafone may make Verizon Communications put its money where its mouth is.

Image courtesy of Flickr user Henrique Vicente

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