Experimental feature

Listen to this article

Experimental feature

A rebel shareholder will on Tuesday highlight how Vodafone’s stake in a US mobile phone operator is a “cash drain” on the UK group.

Efficient Capital Structures, an activist shareholder backed by John Mayo, former deputy chief executive of Marconi, is focusing on how Vodafone has not received dividend payments from Verizon Wireless for two years.

Vodafone has had smaller payments from Verizon Wireless since 2005 that are supposed to cover the UK group’s tax bill relating to its 45 per cent stake in the leading US cellphone operator.

But Vodafone’s annual report, published this month, said these payments may not cover its annual tax liabilities stemming from Verizon Wireless for a period lasting until 2015.

The report said the anticipated shortfalls meant that, unless Verizon Wireless dividend payments resumed, there would be a “net cash outflow” for Vodafone.

ECS is attacking what it says is Vodafone’s “passive investment” in Verizon Wireless, which is controlled by Verizon, the second-biggest US telecoms group.

The rebel investor is urging shareholders to unlock value, partly by supporting a resolution at Vodafone’s annual meeting that calls for its Verizon Wireless stake to be spun off into a separate listed company.

Glenn Cooper, ECS chairman, said: “How can it be that Verizon Wireless, probably the most successful mobile operator in the US, is a cash drain for Vodafone shareholders?”

Vodafone would not disclose how big the annual shortfalls were between what it received in payments from Verizon Wireless to cover its tax bill since 2005 and its actual liabilities but said they were “not a material amount”.

It added: “The situation does not cause value leakage of our holding in Verizon Wireless.”

Vodafone said this month that Verizon Wireless could resume dividend payments in about two years but Denny Strigl, Verizon’s chief operating officer, declined to confirm this.

Vodafone’s latest dividend payment from Verizon Wireless, in 2005, was worth $923m.

Verizon said last year that it was keen to buy Vodafone out of Verizon Wireless but the UK group is unwilling to sell unless offered a hefty premium. Morgan Stanley analysts value Vodafone’s 45 per cent stake at $58bn.

Get alerts on Telecoms when a new story is published

Copyright The Financial Times Limited 2018. All rights reserved.

Comments have not been enabled for this article.

Follow the topics in this article