Jeremy Warner's Outlook: Verizon-Vodafone merger would solve impasse between Sarin and Seidenberg

Arun Sarin, the chief executive of Vodafone, is staying busy to the last. He's quitting as chief executive next month but that hasn't stopped him tying up the deal for Verizon Wireless, in which Vodafone owns a 45 per cent stake, to buy Alltel in a merger which will enable Verizon to leapfrog AT&T to become the largest mobile company in the US.

Except, of course, that this is not really Mr Sarin's deal. Instead, it has been cobbled together by Ivan Seidenberg, whose Verizon Communications is the controlling shareholder in Verizon Wireless.

Lack of management control over Verizon Wireless, or its cash flows, has long been a bone of contention with Vodafone, to the extent that, three or four years ago, Mr Sarin was under intense pressure from some shareholders to sell. He faced them down, a decision which has been vindicated several times over with the renewed strength of mobile phone valuations.

The awkward part of the Alltel deal is that it further delays until 2012 at the earliest the date at which Verizon Wireless starts to pay dividends to Vodafone. Mr Seidenberg has preferred to use the cash flows to pay down debt instead. Buying Alltel means taking on another $28bn of it.

Mr Sarin has secured some concessions out of Mr Seidenberg in agreeing the takeover. For instance, dividend policy now has to be reviewed every year and there is $1.5bn of tax benefits in the deal to Vodafone.

The fit is a perfect one. Synergies are worth $9bn, including the elimination of $1bn of roaming charges between the two companies, making the deal earnings-accretive from year one. Verizon and Alltel also share the same technology platform.

Yet the impasse between Vodafone and Verizon Wireless's controlling shareholder remains as intractable as ever, with neither side showing any sign of blinking. Mr Seidenberg should have bid three years ago, when Mr Sarin's standing in the City was down in the dumps and he would have been incapable of resisting the Verizon embrace. Things have changed, and no one dares challenge Mr Sarin's judgement today.

Merger of the two holding companies is the obvious sol-ution, but for the time being powerful egos and vested interests prevent it.