Vodafone Sees Annual Verizon Dividend of Up to $5.5 Billion

Vodafone Group Plc (VOD), the world’s largest mobile-phone company, said it could potentially get an annual dividend of as much as $5.5 billion from its 45 percent stake in U.S. venture Verizon Wireless.

The calculation is based on an assumed Verizon Wireless annual free cash flow of $10 billion to $12 billion, Vodafone Chief Financial Officer Andy Halford told reporters in New Delhi yesterday. No agreement has been reached yet, he said. Bob Varettoni, a Verizon spokesman, declined to comment.

Vodafone has retained its stake in Verizon Wireless, the largest U.S. wireless provider, even after failing to receive a dividend from the company since 2005, while partner Verizon Communications Inc. (VZ) focuses on paying down debt. Verizon said in January it may pay a “fair dividend” to Vodafone.

“We see the CFO’s comments on Verizon Wireless dividend as significant progress,” Royal Bank of Scotland analyst Lawrence Sugarman said today. “Halford’s comments mark the first time Vodafone has gone on the record as to what quantum of dividend it could expect.”

RBS today upgraded its recommendation for Vodafone shares to “Buy” from “Hold,” with a target price of 190 pence.

Vodafone dropped 0.2 percent to 165.10 pence in London trading as of 9:43 a.m., valuing the Newbury, England-based company at 84 billion pounds ($134 billion). New York-based Verizon Communications rose 0.4 percent to $36.72 in New York Stock Exchange yesterday.

Reducing Debt

“What we find interesting is whether Halford is just giving a theoretical number based on the free cash flow, or whether this is his expectation or understanding of what the actual dividend should be,” Sugarman said.

Verizon Wireless had $9.6 billion of net debt at the end of March, Halford said in May. The company is paying down about $1 billion each month, he said.

Vodafone Chief Executive Officer Vittorio Colao has focused on unwinding some of his predecessors’ takeovers. Arun Sarin pushed Vodafone into markets such as Ghana and Turkey. Christopher Gent led Vodafone through a six-year $300 billion acquisition spree.

Vodafone sold a stake in China Mobile, reduced interests in Japan’s Softbank Corp. and this month completed a sale of its 44 percent holding in French wireless operator SFR to Vivendi SA. (VIV) The U.K. company is now pursuing a disposal of its 24 percent stake in Polish mobile-phone operator Polkomtel SA.

To contact the reporter on this story: Mehul Srivastava in New Delhi at msrivastava6@bloomberg.net;

To contact the editor responsible for this story: Kenneth Wong at kwong11@bloomberg.net

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