Shares in Vodafone grew 2.3% yesterday on the news the company could finally start receiving dividends from its 45% holding in Verizon Wireless.
The boost followed a Guardian report that Vodafone's CEO Vittorio Colao, and Verizon chief Ivan Seidenberg have held secret talks to resolve the dividend dilemma.
Sources told the Guardian the parties have come up with an arrangement whereby Verizon will resume dividend payments in 2012, after Verizon Wireless finishes paying off a loan from the 2009 acquisition of rival Alltel for $28.1 billion (€21.5b).
The first dividend will likely be at least £3 billion (€3.5 billion). Vodafone will then be able to increase its own dividend to £10 billion from £8 billion, the sources said.
After dividend payments are resumed, Vodafone and Verizon are expected to consider the future of the unit.
Among the most likely scenarios are for Vodafone to sell its Verizon Wireless stake for a hefty premium, or an all-share merger between Vodafone and Verizon to create a £140 billion global telecom behemoth, according to analysts.
Verizon hasn't paid out a dividend to its joint venture partner since 2005. Dividends were suspended in an attempt to force Vodafone to sell its Verizon Wireless holding for an estimated £33 billion. But Vodafone did not want to sell on the grounds that it would be hit with a £10 billion capital gains tax.
While Vodafone has been divesting its non-core assets, including the £4.3 billion sale of its 3.2% stake in China Mobile, Colao last week told FT.com the company would not allow investors to force the company into selling its minority stakes.
Vodafone’s stock on the London exchange closed at £164.00 on Monday, up from £160.30 on Friday.