Verizon courts Vodafone while dashing dividend hopes

Verizon Communications seemed to be playing a cat-and-mouse game with Vodafone this week, as the new CEO of the US telecoms giant first waxed lyrical about a closer relationship between the two owners of Verizon Wireless and then ruled out any chance of recurring dividends from the wireless joint venture.


According to the Financial Times, while Verizon Communications CEO Lowell McAdam played down the chance of an imminent merger with Vodafone, he spoke "enthusiastically" about how the two companies are collaborating to serve the telecoms groups' needs of their multinational corporate clients. He also said a combination between Verizon Communications and Vodafone could potentially offer "competitive advantage" and "scale advantage."

However, this was immediately followed by the news that McAdam had dashed the hopes of Vodafone investors by ruling out a return to a recurring dividend from Verizon Wireless.

McAdam told the FT that it was not possible to have a policy of annual dividend payments by Verizon Wireless because the leading US mobile operator may need to buy rival businesses or purchase spectrum.

According to the Independent, the dividend issue had caused significant tension between the two venture partners after Verizon Wireless, the largest US operator by number of subscribers, failed to pay a dividend for six years, until it announced it would pay out $10 billion at the end of July.

The comments by McAdam on the need to retain cash for investments were also written off as "bluster" by one analyst, according to the Independent. The UK newspaper quoted Will Draper, a senior analyst at Execution Noble, as saying: "Really this is just bluster from Verizon. There's nothing to buy that would need that sort of cash. The chief executive is just giving himself some wiggle room."

Draper added that Verizon "needs the money much more than Vodafone does to fund its own dividend, as well as a pension and healthcare deficit."

For more:
- see this Financial Times article
- see this separate Financial Times article
- see this Independent article

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