Rumour mill: Vodafone, Verizon merger more likely, claims analyst

Vodafone's long-suffering frustrations with Verizon Wireless over a lack of dividend payment from the US operator could be resolved with a merger of the two companies to form a telecoms provider with global clout.

This viewpoint--which is not altogether new--has been given fresh impetus following comments from US analysts that the chances of a merger have risen substantially compared to a few years ago. "A couple of years ago I would have said the likelihood of them merging was 10 per cent, but now I would say it's more like 30 or 40 per cent," said Execution analyst Will Draper.

However, other industry watchers maintain that Vodafone should not push the idea given that Verizon Wireless will at some point approach the UK-based company asking for help. One thought is that Verizon Wireless might make a divided payment next year (the last payment was made in 2005) providing Vodafone with a transformational cash return of nearly US$4 billion.

If this happens, it could trigger action by Vodafone to move from being a minority shareholder in Verizon Wireless into a position of greater control in a vital market.

The possibility of Vodafone selling its 45 per cent stake in Verizon--which is valued at US$65 billion--would mean a huge tax bill for Vodafone and would rely on the only likely bidder, Verizon Communications, being able to afford it.

One option being floated is that Vodafone does sell its shareholding, perhaps simplified by Verizon including a swap of its 23 per cent stake in Vodafone Italy business as part of its payment, leaving Vodafone then free to partner with someone like T-Mobile US.

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