LONDON -(Dow Jones)- A group of Vodafone Group activist shareholders Tuesday stepped up calls for the mobile operator to derive more value from its 45% stake in USA Verizon Wireless and rejected the company's claims that spinning off the company would have tax implications.
Activist shareholder group Efficient Capital Structures, led by former Marconi deputy chief executive John Mayo, is urging shareholders to back four resolutions put forward for Vodafone's annual general meeting on July 24, including spinning off Vodafone's 45% stake in Verizon Wireless into a listed security.
ECS said that a "standoff" between Vodafone and it's North American partner Verizon Communications, which owns the majority of Verizon Wireless, is the reason why Vodafone shareholders haven't been seeing income from the North American joint-venture.
At 1416 GMT shares in Vodafone traded up 2%, or 3 pence, at 161 pence, in a higher U.K. telecoms sector.
"Verizon Wireless has been a cash drain for Vodafone, a situation forecast to continue for another eight years unless agreement is reached with Verizon Communications," said ECS in a statement.
ECS said that Vodafone and Verizon Communications are at a standoff over distribution of tax. The two companies have yet to agree a new distribution arrangement, despite the initial five-year deal ending in April 2005.
In Vodafone's annual report, the company said tax distributions will not be sufficient to cover its U.S. tax liabilities for Verizon Wireless until 2015.
Last month Vodafone said that it hoped that Verizon Wireless could resume dividend payments in about two years, after debt had cleared. However Verizon Communications has since refused to confirm this date, saying it was not close to paying it off.
ECS also rejected claims by Vodafone that there would be tax implications if the Verizon Wireless holding was spun-off.
Vodafone wasn't immediately available for comment.
On June 7, Vodafone said that ECS's proposals would make the company a sub-investment grade borrower.
"As such, Vodafone's cost of debt would rise materially, contributing to incremental interest expense of at least GBP2 billion per annum," said Vodafone at the time. "At this level of leverage, it is unlikely that Vodafone could benefit from tax deductibility on the full interest amount. Vodafone's existing dividend policy would also be put at risk."
ECS Chairman Glenn Cooper Tuesday rejected these claims, saying that its resolutions permitted the use of "tried and tested" techniques accepted by tax authorities on both sides of the Atlantic.
"The use of tax as a rationale for maintaining the current ownership structure of Verizon Wireless is disingenuous," said Cooper.
Cooper said the proposal would allow Vodafone to distribute the same level of cash to shareholders while saving £600 million a year in tax.
Efficient Capital Structures consists of a group of small shareholders owning 210,000 shares, or 0.0004%, of Vodafone's issued stock. But by law Vodafone has to put forward the resolutions to shareholders.
ECS said that it had yet to see a major shareholder publicly back it. "However, we've had very positive noises," said a spokesman for ECS.
Company Web site: http://www.vodafone.com
-By Daniel Thomas, Dow Jones Newswires; 44-20-7842-9264; email@example.com
(END) Dow Jones Newswires"
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