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Vodafone Getting a $4.5 Billion Windfall from Verizon Wireless

Vodafone Getting a $4.5 Billion Windfall from Verizon Wireless

Vodafone is to get its first dividend payment from its Verizon Wireless subsidiary in many years after the US network approved a US$10 billion (£6.1 billion) dividend payment to its two shareholders.

As a 45% shareholder in Verizon Wireless, Vodafone’s share of the dividend will be $4.5 billion (£2.8 billion). The dividend is due to be paid on 31 January 2012.

Vodafone said that it intends itself to pay a special dividend of £2 billion to Vodafone shareholders in February 2012. The balance of the proceeds will be retained to reduce net debt.

Vittorio Colao, Chief Executive of Vodafone, commented “Our long term partnership in Verizon’s strong and successful wireless business has seen the value of our investment increase significantly over recent years. The dividend from Verizon Wireless allows us not only to reward our own shareholders with an immediate and sizeable cash return, but also to continue to reinvest in our business to improve our customers’ experience, further strengthen our competitive position and create additional value for shareholders.”

Verizon Wireless had been expected to resume dividend payments shortly as it was paying down its debt quickly, and its two parent owners have their own debt piles to reduce, so would be keen to gain access to the dividend payments.

The announcement is a vindication for Vodafone, which was not only instrumental in creating Verizon Wireless in the first place – but has come under repeated pressure over the past years to sell its stake and return the cash to its shareholders.

Vodafone’s founding CEO, Chris Gent won the battle to buy USA based CDMA network, Airtouch Communications in the USA back in January 1999 – beating Bell Atlantic to the prize.

As a result of losing the battle for Airtouch, Bell Atlantic terminated its PrimeCo joint venture with Airtouch, leaving the company with a network that was limited to the Western side of the USA, while Bell retained its Eastern network. Despite this, only a few months later, Gent was talking to Bell Atlantic about the creation of a nationwide CDMA network operator, and in late September, the two companies announced the formation of Verizon Wireless.

Vodafone took a 45% stake in the even larger company, while Bell Atlantic, later renamed Verizon Communications took the controlling 55% stake in the mobile network.

Technically, Verizon Communications’ stake is held through its subsidiaries Bell Atlantic Mobile Systems (24.2%) and GTE Wireless (30.8%), and Vodafone owns 45% through its subsidiaries PCS Nucleus and JV PartnerCo, which owns 6.2% and 38.8% respectively.

The relationship between the two companies has not been always cordial since then, and Verizon Communications has long wanted to buy out Vodafone’s stake in their joint venture, while Vodafone has reportedly occasionally mulled a takeover bid for Verizon Communications itself.

An abortive attempt by Vodafone to buy AT&T Wireless in 2004 further strained relations, but the two sides agreed to the 2008 takeover of Alltel Wireless, even though it further delayed the payment of dividends to Vodafone as debt was again raised, and then paid down.

After over a decade of deals in the USA, Vodafone is finally starting to generate cashflow from the market.

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