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Vodafone weighs bid for AT&T Wireless

Mobile phone giant Vodafone Group Plc stoked fresh speculation on Monday it was poised to launch a knockout $30 billion-plus bid for U.S. rival AT&T Wireless by reiterating it was considering a takeover.
/ Source: Reuters

Mobile phone giant Vodafone Group Plc stoked fresh speculation on Monday it was poised to launch a knockout $30 billion-plus bid for U.S. rival AT&T Wireless by reiterating it was considering a takeover.

In its first statement on the subject to the London Stock Exchange, the world's largest wireless operator by revenue said it continued to monitor developments in the U.S. and "is exploring whether a potential transaction with AT&T Wireless is in the interests of shareholders".

Vodafone has until Friday to decide whether to join an auction for the third-largest U.S. wireless operator, which put itself up for sale last month after receiving an offer from a U.S. rival following a series of lackluster results. AT&T Wireless, which is 16-percent owned by Japan's NTT DoCoMo, has already received an informal, all-cash bid of about $30 billion or $11-per-share from Cingular, the number two wireless group controlled by SBC Communications Inc and BellSouth Corp, sources close to talks have said.

A counter-bid by financially-powerful Vodafone could mark a return to empire building. The group has won a reputation for aggression since its record transatlantic bid for U.S. wireless group AirTouch in 1999 and a 180 billion euro ($229 billion) hostile takeover of German ally Mannesmann one year later.

Some analysts and shareholders are skeptical of the merits of a big bid for struggling AT&T Wireless, as the British-based group would have to dispose of a lucrative 45-percent stake in Verizon Wireless, the largest U.S. mobile phone company.

Market reaction to any deal, which could dilute earnings for around four years, hinges in part on whether Vodafone can negotiate a satisfactory price for its Verizon Wireless stake, which is valued at $20 billion-$25 billion.

"Vodafone would undoubtedly like to bid for AT&T Wireless at a sensible price," noted one corporate financier. "But the issue is selling out of Verizon. They don't want to be seen to pay over the odds for AT&T Wireless while also being forced to accept a fire-sale price for their Verizon Wireless stake."

Vodafone's shares, which have fallen more than eight percent since AT&T Wireless put itself up for sale on January 22, nosed 0.37 percent higher to 135.25p by mid morning.

Vodafone has long sought to control its overseas assets, although its strategy to date has been to invest in the largest or second-largest operators abroad. And AT&T Wireless's market share of about 17 percent is being eroded by fierce competition.

But a bid would allow the firm to control an asset in the world's biggest economy and bring its brand across the Atlantic. If Vodafone decides to pull out of Verizon Wireless to launch a bid, analysts say U.S. joint venture partner Verizon Communications remains the most obvious buyer. Vodafone also has the option to list the stake in an initial public offering, although that could prove time-consuming.

All eyes are on Vodafone's Chief Executive Arun Sarin, who took the helm around six months ago. Sarin, an Indian-born U.S. citizen, comes armed with plenty of U.S. experience. He ran U.S. mobile group AirTouch before Vodafone snapped it up.

Bear Stearns said a bid at around $30 billion would dilute Vodafone's earnings-per-share (EPS) until March 2008, with a reduction in EPS to March 2005 of 7.5 percent. But it added that the deal would be cashflow positive from March 2006.

Some analysts note that even if Sarin decides against launching a knockout AT&T Wireless bid in the 11th-hour, he has little to lose by lodging an initial offer. This would help push up the price rivals such as Cingular will end up paying while also crystallizing the value of all U.S. mobile assets.

Partly because of its financial strength, Vodafone is considered the strongest potential bid rival to Cingular. But most London analysts believe Cingular could out-gun Vodafone, as it can extract higher savings from combining two U.S. networks.

"We would not rule out the possibility of Vodafone entering a bid, since not doing so could make it difficult for Vodafone to establish the price sensitivity of both the rival bidders for AT&T Wireless and Verizon Communications," Goldman Sachs said in a research note.

"However... if Cingular is determined to get the asset, then its in-country system will probably support a higher offer than Vodafone could justify, depending upon any offer from Verizon for Verizon Wireless."