But as much as the cash, the deal is a welcome victory for Vodafone CEO Vittorio Colao and outgoing chairman Sir John Bond. Squeezing the divi out of Verizon vindicates their decision to make a special case and hold on to the stake, despite it not being a controlling share. For as the urbane Colao explained in the MT Interview recently, the Group’s strategy now is to exit minority holdings in order to free up capital for majority investments in which it can have a decisive say. Rules are made to be broken, as they might be saying to one another.
It also means that hugely respected city veteran Bond is going out on a high note, replaced by Gerald Kleisterlee formerly of Philips.
As a result of the deal, Vodafone will make a one off payment to its own shareholders of £2bn early next year. So don’t expect to see too many Vodafone shares changing hands in the intervening period. The rest of the cash will be used to pay down debt. All very sensible.
The decision by Verizon to issue the dividend is a pragmatic one which should bring a measure of piece to what has been a successful if uncomfortable JV. Verizon Wireless has in effect been funding its parent group Verizon Group’s dividend for some years, there not being enough cash in its declining landline business to cover it otherwise. This change will see Verizon Group’s shareholders receive about the same dividend, except that now it will be coming explicitly from Verizon Wireless. Phew.
So why the change of heart? Simply because there wasn’t much alternative. Verizon tried and failed to buy Vodafone’s stake in 2006, since when Verizon Wireless has simply grown too big for either partner to be able to afford to buy the other out. So they have to learn to get along.
The only question remaining to be resolved now is whether these payouts will become an annual event. As things stand the moment, Verizon’s board says definitely no, this is a one off. But Vodafone’s Colao would clearly like to see them change their minds on that, and the smooth-talking Italian seems to have been pretty persuasive so far…