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Vodafone Group Public Limited Company Message Board

  • haydnlover12 haydnlover12 Apr 8, 2011 12:55 PM Flag

    Payout for Verizon Wireless ownership ?

    I recall a few months ago seeing some financial expert or investor, I think it may have been on the Consuel Mack PBS program, say that it was worth holding VOD stock as they would later be paying out a dividend or some such for VOD's 45 % ownership of Verizon Wireless, maybe by the end of this calender year (?). This has been an ongoing issue with this stock for many years and always comes up at the Q & A with the VOD people. Does anyone have any idea on the timing and probable amounts that are likely here ? This may have been asked and answered here before, but I am not seeing it.
    I note the next significant milestone for this stock is the ex-div date in early June for the div in early August. So any payout for VZ Wireless would be a special div, which is what the expert I saw was referring to.

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    • You are not 100% accurate because having invested in 45% of Verizon Wireless, VOD has spent a considerable amount of money. Since this investment is not earning dividends at the present time so it is costing something. I would rather have the dividends over time than the capital gains some time in the future when VZ decides to buy out VOD.

    • I completely agree with you. I suppose what VZ is missing in all of this is that as they continue to use the cash flow from vz wireless to pay down debt, upgrade 4G to compete or whatever... the fact of the matter is that as VZ continue to add, tweak, etc VZ wireless, VZ wireless continues to become more and more valuable and at some point, VZ will want to own the 100% of VZ wireless and not share it with anyone else. That is the day I want to be an owner of VOD. The real question is how valauable was VZ wireless 5 years ago and how valuable is it today. We all know its in the 10's of billions and getting more valuable every day and guess what, VOD owns 45% of that behometh... If you look at this whole picture logically, it is VOD who holds the cards, not VZ... VOD can sit there and bide their time because quite frankly, its not costing them a dime to sit there and hold their position... There is no question that VZ has stonewalled VOD by not paying the a percentage of vx wireless profits over the years and at some point, VOD is going to stick it to them big time... Like I said, I would rather be in VOD's camp on this one... good luck to all

    • Yes, Vodaphone is not receiving any cash from Verizon Wireless--it's all being redirected to Verizon (VZ) to pay off debt from the Alltel acquisition. However, the Alltel debt should probably be paid off entirely in 2011.
      Once this occurs, presumably VZ would start making Verizon Wireless start to pay dividends. The easiest way to quantify this would be to look at "income Attributable to noncontrolling interest" on Verizon's latest 10-k. This amount was $7.67 billion. This is essentially the amount of cash that Verizon would start having to funnel to VOD once the wireless segment's debt repayment is complete (although it would probably be somewhat less, b/c Verizon Wireless will probably want some excess cash on hand to fund growth Capex). Technically, VZ could decide NOT to pay dividends, but frankly Verizon needs the cash a lot more than VOD, and they'd be hurting themselves by not instituting a dividend.

      However, there's a real second possibility. VZ (not Verizon Wireless) is in much worse shape than they're letting on. My estimate of 'sustainable cash flow' for VZ is actually less than their current dividend payout. Deduct out the amount of money that should go to VOD, count pension expenses as actual cash expenses (they can delay paying in the short-term, but barring a dramatic increase in equity markets they can't do it forever)...and VZ is actually facing the real likelihood of having to cut the dividend on their common stock. Having to pay dividends to VOD would highlight to the market just how weak their cash flow position really is. As a result, Verizon may actually fight pressure from VOD to institute a Verizon Wireless dividend tooth and nail. I would not be at all surprised to see Verizon Wireless announce another acquisition in the near future, in order to delay having to pay VOD a dividend (and in the face of AT&T's recent Virgin Mobile acquisition from Deutche, they could claim to be doing it to remain competitive with AT&T). And VOD cannot block a small-sized deal, and might even support a takeover of, say, Sprint.

      I own shares of Vodaphone (and am short shares of VZ), and I would like to start receiving dividends from Verizon wireless (which could easily raise VOD's payout from less than 4% to 7 or 8%, and still leave VOD with growth capital). Compare an extra, say, $6 billion in cash flow to VOD's ~$150 billion market cap. Even if this does not occur as quickly as I hope, however, you're still looking at a stable company with strong cash-flow-generating power trading at ~8.5x earnings.

      Respectfully,
      SP

      P.S.: Since I've mentioned the possibility of Verizon using a takeover to delay a dividend payout, it may be prudent to hold a basket of smaller potential takeover targets in the telecom space as a hedge against any long VOD position. I personally hold option positions in Sprint largely for this reason (also because it's attractively valued on its own).

 
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