For the past 13 years, Verizon Communications Inc. (NYSE:VZ)‘ main squeeze has Vodafone Group Plc (ADR) (NASDAQ:VOD). The two paired up in April 2000 to found Verizon Wireless as a joint venture, which would proceed to become the largest wireless carrier in the U.S. with 98.9 million retail subscribers.
Verizon Communications Inc. (NYSE:VZ)’s 55% majority stake has always allowed it to call the shots, while Vodafone Group Plc (ADR) (NASDAQ:VOD) sits by passively with its 45% share. Speculation that Big Red is seeking to buy out that remaining 45% from Vodafone has increased in recent months, particularly as the wireless segment is where all of the growth is coming from nowadays. Vodafone CEO Vittorio Colao said he was “open” to the notion a couple months ago.
Money talks
Verizon Communications Inc. (NYSE:VZ) CEO Lowell McAdam said last week that the wireless subsidiary may not pay out a distribution to its two owners this year, and instead may focus on paying down $5 billion in debt that’s coming due. Big Red then reiterated that it’s remaining firm on price when it comes to buying out Vodafone Group Plc (ADR) (NASDAQ:VOD)’s stake.
Combined, the statements are a clear message to the European telecom giant that Verizon Communications Inc. (NYSE:VZ) wants to put on financial pressure by withholding distributions. Verizon’s controlling interest allows it determine when distributions are made, while Vodafone Group Plc (ADR) (NASDAQ:VOD)’s noncontrolling stake allows it to do nothing but sit there and wait patiently.
Verizon Wireless is the real moneymaker, while the wired side is a snoozer.
| Operating Income | Q1 2013 | Q1 2012 |
|---|---|---|
| Wireless | $6.4 billion | $5.2 billion |
| Wireline | $13 million | $157 million |
Source: 10-Q. Reconciling items and consolidated total not shown.
As growth shifts toward wireless, Verizon Communications Inc. (NYSE:VZ)’s net income attributable to noncontrolling interests (i.e., Vodafone’s share of the profits) likewise rises.
| Metric | Q1 2013 | Q1 2012 |
|---|---|---|
| Net income attributable to noncontrolling interest | $2.9 billion | $2.2 billion |
Source: 10-Q.
In case you haven’t heard, Europe is facing a tough macroeconomic environment, which is putting a damper on Vodafone Group Plc (ADR) (NASDAQ:VOD). Verizon Wireless has helped shore up its results. Vodafone’s share of Big Red’s bottom line accounted for 42% of Vodafone’s adjusted operating profit last year. Verizon Communications Inc. (NYSE:VZ) Wireless sent $4.5 billion to Vodafone last year, of which $3.1 billion was distributed to Vodafone shareholders. Meanwhile, the company’s free cash flow fell 13% and adjusted earnings per share were down 11%.
Even if Vodafone is “open” to selling its stake, it probably isn’t thrilled about it unless the price is right. Verizon’s bringing the heat.
The article Is Verizon Making Vodafone an Offer It Can’t Refuse? originally appeared on Fool.com.
Fool contributor Evan Niu, CFA, owns shares of Verizon Communications. The Motley Fool recommends Vodafone.
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