Vodafone and Verizon Mull What To Do With Verizon Wireless

What’s going to happen to Verizon Wireless (VOD, VZ)?

The wireless joint venture, while it has Verizon in the name, is actually 45% owned by Vodafone. As I noted in a recent post, Verizon Wireless is nearing completion on paying down outstanding debt, which would leave it finally in a position to start paying Vodafone its proportionate share of the venture’s cash flows; Verizon would rather not have to do that.

The Telegraph reported over the weekend that Vodafone CEO Vittorio Colao and Verizon CEO Ivan Seidenberg have been holding informal talks on “finding a solution” for Verizon Wireless.

The piece sees several potential outcomes:

• The two companies merger in a stock deal that could be worth more than 120 billion pounds – or more than $179 billion. The piece says that Vodafone thinks the merger should be 60/40 in its favor.
• Verizon starts paying dividends to Vodafone.
• One party buys the Verizon Wireless to the other, or to a third party.

The story contends that a merger is the most likely outcome, on the theory that Verizon really doesn’t want or intend to pay out dividends from Verizon Wireless to Vodafone, and that the economics of a transaction for one party to sell their piece to the other doesn’t really work, either.

In today’s trading:

• VOD is up 69 cents, or 3.1%, to $22.64.
• VZ is up 16 cents, or 0.5%, to $30.53.