Verizon Wireless surprises with $7B dividend to parent companies

Verizon Wireless (NYSE:VZ) will pay a $7 billion dividend to parent companies Verizon Communications and Vodafone by the end of June, diffusing a potential source of tension between the two parents as speculation continues to burble that Verizon will buy Vodafone's 45 percent stake in the joint venture.

The dividend payment, which surprised many financial analysts, will be paid by June 25, and will be paid in proportion to the parents' ownership stakes in Verizon Wireless. Verizon Communications, with its 55 percent stake, will get $3.85 billion and Vodafone will get $3.15 billion.

Verizon Wireless paid an $8.5 billion dividend to its parent companies late last year, split along the lines of their stakes in the company. The payment was less than the $10 billion payment Verizon Wireless distributed in January 2012, which was the first time the carrier had paid out a dividend since 2005. The parent companies discuss the dividend policy at Verizon Wireless board meetings during the year.

The payment comes as something of a surprise given recent comments that Verizon Communications CEO Lowell McAdam made to analysts at J.P. Morgan, according to a report from the investment bank. McAdam said the parent companies could face a "lean" year in terms of receiving a dividend payment, and Verizon Wireless' focus would be on paying down the $5 billion in debt it has coming due between now and the middle of 2014 before making another dividend payment.

Verizon spokesman Peter Thonis told FierceWireless that the "J.P. Morgan report is essentially accurate," but declined to comment beyond that. Those comments, however, were reported before a Verizon Wireless board meeting on May 9 where the dividend payment was decided.

"I wouldn't call that lean," Evercore analyst Jonathan Schildkraut told Reuters, referring to the $7 billion dividend. Schildkraut said he took McAdam's earlier comments as a sign of pressure being exerted on Vodafone to make a deal. "Despite more contentious commentary from Verizon management it just does not appear that withholding Verizon Wireless cash flow from Vodafone is likely to be part of the negotiation," Schildkraut said.

"This is a complete surprise and runs counter to some of the reports in the press recently," New Street Research analyst Jonathan Chaplin told Bloomberg. "There are two ways to read it: The companies' relations aren't as fractious as we may have believed or Verizon has completely given up on the process."

Reuters and Bloomberg reported last month that Verizon hired advisers in advance of a possible $100 billion cash and stock bid for Vodafone's stake, kickstarting another round of speculation about how and when the two companies will resolve the nature of their relationship. Verizon Communications executives have said they remain interested in acquiring Vodafone's stake in Verizon Wireless.

For more:
- see this SEC filing
- see this WSJ article (sub. req.)
- see this Bloomberg article
- see this Reuters article

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