Can Verizon’s Gift Help Vodafone Bounce Back?
European cellphone provider Vodafone Group has decided to keep a $3.19 billion dividend from Verizon Wireless rather than return the money to shareholders in the face of economic decline in Europe, and Vodafone’s own inability to keep up with competitors.
Vodafone hopes to use the money to develop bundled packages of mobile phones, television, and Internet services. Vodafone is currently isolated in the market as a mobile-only provider, but has projects in the works to offer bundles and establish better footholds in Germany, France, and Spain. Vodafone has been forced to close stores and cut jobs in Italy, Spain, and Germany, but is hopeful that the European economy is improving. Vodafone hopes that the losses it experienced last quarter will be low as the European economy bounces back.
Vodafone is also facing pressure to sell its most valuable asset, a 45 percent stake in U.S. mobile provider Verizon Wireless (NYSE:VZ). Verizon Communications Inc. owns 55 percent of Verizon Wireless and is looking to buy Vodafone’s stake. Chief Executive Officer of Vodafone, Vittorio Colao, seems reluctant to sell Vodafone’s stake in Verizon, but has said he is keeping an open mind about the possibility. Verizon Wireless is the U.S.’s fastest growing mobile network.
Verizon hasn’t formally bid on Vodafone’s stake in Verizon Wireless, but the deal is expected to be between $100 and $130 billion. Colao refused to comment on the possibility of selling any remaining stake in Verizon Wireless. Vodafone seems content to sit on its stake in Verizon Wireless despite pressure to sell. Colao called the company a “fantastic asset that generates a lot of cash every month,” and Vodafone Chief Financial Officer Andy Halford said in a press conference that Vodafone is a “happy holder” of Verizon Wireless.
Vodafone has seen success recently in expanding to countries outside of Europe. Ventures in Africa, Asia, and the Middle East have been outperforming European markets. Some of the dividend will be used to bid on frequency auctions in India and South Africa. As of now, the company generates three quarters of its income in Europe, and it will continue to struggle if it fails to adapt to the European market.
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