NEW YORK – Verizon Communications Inc. said Tuesday that cellular partner Vodafone Group PLC has opted not to sell its 45 percent stake in Verizon Wireless for at least the next few years. But even if Verizon won’t need tens of billions to fund a cellular buyout, it plans to proceed with a spinoff of its phone book business.
The updates on the two major financial question marks for Verizon, one of the nation’s two dominant telecommunications providers, came as the company reported a 24 percent drop in second-quarter profit despite yet another powerful showing by the cellular business.
Amid the day’s crosscurrents, Verizon’s stock fell 55 cents, or 1.6 percent, to close at $33.27 on the New York Stock Exchange.
The steady, strong growth of the wireless operation, where second-quarter revenue improved 18 percent to $9.26 billion, has been a double-edged sword dangling over Verizon’s stock price.
Full-ownership of Verizon Wireless’ profit would help fund a hugely expensive upgrade of the Verizon’s traditional phone network with fiber-optic lines to deliver TV and next-generation Internet services. But as the cellular business has prospered, its market value has soared, fueling worries Verizon might be forced to take on too much debt to buy the Vodafone stake, now estimated to be worth well above $40 billion.
Jeff Halpern, an industry analyst at Alliance Bernstein, told a conference call after the earnings report that the company’s preview last week on Verizon Wireless’ strong quarter failed to boost Verizon’s stock, possibly because of some concurrent remarks by Vodafone Chief Executive Arun Sarin.
“It seems to me that was in no small part a result of Arun making statements at his analyst meeting about how he’d be willing to sell you his stake in Verizon Wireless if you were only willing to pay a fair price,” Halpern said.
Verizon chief executive Ivan Seidenberg responded by saying that after meeting with Sarin last week, they agreed to “clarify to our respective investors that at this point in time there really isn’t much reason for people to speculate over any change in the whole arrangement between the two companies” for the next several years.
“What Arun communicated to us was that Vodafone was extremely pleased with their position in the partnership,” Seidenberg said. “Their view is that the creation of value that’s available to them over the next several years is far greater than any strategy that they might have to exit the partnership.”
The uncertain fate of Vodafone’s interest has been a source of speculation since at least early 2004, when AT&T Wireless put itself up for sale. Vodafone emerged as one bidder, eager to add a fully owned U.S. business to its global wireless empire. AT&T Wireless ultimately struck a deal to be acquired by Cingular Wireless for $41 billion, eliminating any urgency for Vodafone to sell its Verizon Wireless stake.
Seidenberg also disclosed Tuesday that the company now sees a spinoff to shareholders as the more likely route for the proposed divestiture of its print and online phone directories business. He said that initiative will proceed even though there will be no pressing need for money to buy the rest of Verizon Wireless. Analysts have estimated that Verizon Information Services may be worth between $10 billion and $15 billion.
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