Vodafone seen keeping Verizon Wireless stake

European Telecoms Correspondent

File photo of a Vodafone shop. REUTERS/Stephen Hird

LONDON (Reuters) - Mobile phone giant Vodafone Group VOD.L is likely to decide this week against selling part of its key stake in U.S. joint venture Verizon Wireless, a source familiar with the company said on Tuesday.

“It would appear that Vodafone has decided to hang onto Verizon Wireless for now,” the source said.

Vodafone, the world’s second largest mobile phone company by customers, has until Thursday to decide whether to exercise an option and sell up to $10 billion (5 billion pounds) worth of its 45 percent stake in Verizon Wireless, which analysts value at around $45 billion.

A company spokesman said no decision had yet been made.

Vodafone shareholders have been frustrated that the value of Verizon Wireless, which is controlled by U.S. telecoms heavyweight Verizon Communications VZ.N, is not fully reflected in Vodafone's share price and that the unit is not expected to reinstate dividend payments until at least 2009.

But company investors last month overwhelmingly rejected calls by a small activist shareholder, Efficient Capital Structures (ECS), for Vodafone to spin off the stake into a separately-listed company.

Vodafone Chief Executive Arun Sarin has said only that the British-based company is examining all options in the United States, which contributes well over 20 percent of underlying group operating profit.

Some analysts have speculated that Vodafone could sell up to $7.5 billion of the stake on a tax-deferred basis to lock in a tax holiday benefit that would otherwise expire, returning part of the cash to shareholders.

But Citigroup, a broker, argues that any partial sale of Vodafone’s stake would trigger market expectations of a full sell-out, hand control of the stake’s valuation to independent investment banks and hamper Vodafone’s bargaining position.

“Why would Vodafone put itself in such an unpredictable position regarding its biggest asset? It’s for Messrs Sarin and (Verizon Chief Executive Ivan) Seidenberg to determine the price, not banks,” Citigroup said in a note.

The broker, which rates Vodafone shares a “buy”, added that given the growth of Vodafone’s assets in markets such as India and Turkey, the group could sell its U.S. stake within 24 months without endangering revenue, earnings and cashflow.

Verizon Communications, the second-largest U.S. telecoms operator, has long voiced its interest in buying Vodafone out.