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Conspiracy theorists alert! Verizon Wireless's declaration of a $7-billion (U.S.) dividend to be paid next month to its owners – Verizon Communications Inc. and the U.K.'s Vodafone Group PLC – was subject on Tuesday to as many intricate readings as Elvis's death.
Those buying into speculation that Verizon is poised to bid for the 45 per cent of Verizon Wireless owned by Vodafone, seemed understandably deflated at first. After all, if ink is virtually dry on bid documents, why bother with this nicety? Moreover, for those convinced that Vodafone is being recalcitrant, the tactic of not paying dividends so as to strong-arm the U.K. group into negotiations, had suddenly been tossed away.
But such spirits refused to be discouraged for long. Of course, they quickly reasoned, this was an effort to take the issue of this year's dividend off the table and so allow negotiations over valuation between Verizon and Vodafone progress unimpeded. Not convinced? Try this instead. The payout is an "olive branch," oiling relations between the Verizon and Vodafone boards. Same conclusion: sale talks will now proceed more smoothly.
It is all a bit of a nonsense. Vodafone and Verizon may, indeed, try to resolve the relationship, but immediate pressure on the former is not obvious – nor are there many better alternative investments than Verizon Wireless at present. Vis a vis its dividend declaration, a much simpler fact is that Verizon Communications will find it easier to maintain its own payment (annual cost near $6-billion) if cash is pushed upstream from its now lowly-leveraged mobile offshoot (even if executives stressed recently that this was not a necessity). What Vodafone does with the funds is more debatable. It has paid out part of Verizon Wireless dividend stream previously, but with a stock buyback under way, that looks less certain this time. Extra cash on Vodafone's balance sheet would not go amiss.