Verizon Playing Hardball with This Move on Vodafone

Verizon (NYSE:VZ) is hinting it’s willing to play hardball if the company can’t get what it wants from Vodafone (NASDAQ:VOD). As the buzz surrounding Verizon’s efforts to buy out Vodafone continues, some tough talk is hitting the newswires. Verizon’s chief executive mentioned the company has options when it comes to paying dividends, a tactic that could starve Vodafone of cash this year.

Since Verizon controls the majority interest of the wireless division, the company calls the shots on the way the company handles its cash flow. In this case, Verizon could simply pay off debt and forego dividend payments to Vodafone. Verizon CEO Lowell McAdam told investors that the company is prioritizing its debt payments and might move forward with this plan of attack.

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There was no “unless Vodafone sells” in the chief executive’s statements, but most observers recognize the negotiating tool for what it is. A strategy of bringing the deal to analysts backfired on Verizon recently when the majority agreed that the value of Vodafone’s 45 percent in Verizon Wireless was somewhere around $120 billion, a far cry from the $100 that was offered (Vodafone wants $130 billion). Part of the issue was the tax burden claimed by Vodafone investors upon selling. Yet some say that claim is unfounded…

Bloomberg reported that the sale would leave Vodafone owing the UK taxman nothing, resulting from the sophisticated protection structure set up by company finance officers. Though the $10 billion above Vodafone’s $120 billion valuation was said to be from tax concerns, analysts are seeing the claim as a way to score more cash in the deal.

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So far, neither side has shown any willingness to budge. Reuters reported that Verizon’s chief executive is willing to wait on Vodafone as the pressure mounts. Verizon remains set in its view that $100 billion is the price to pay for Vodafone. However, a sense of urgency might affect Verizon by year’s end. Its ability to finance the deal through low-interest loans could change in the near future. If it would like to package its best deal for Vodafone, 2013 might be the last year to do it.

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