Vodafone begins countdown for AT&T bid

Kirstin Ridley

LONDON: Mobile phone titan Vodafone Group Plc has seven days to decide whether to join a $30 billion auction of U.S. rival AT&T Wireless, but market experts say it may leave a final decision to the eleventh hour.

While Chief Executive Arun Sarin analyses the merits of trading in a 45 percent stake in the top U.S. wireless group Verizon Wireless for control of the number three operator, his camp is drafting possible pitches to investors.

Banking sources say the world's largest mobile phone group has also been sounding out the credit market about possible loans for acquisitions since AT&T Wireless put itself up for sale about two weeks ago after a series of lackluster results.

But sources familiar with the group say Sarin, a U.S. citizen who ran U.S. mobile group AirTouch before Vodafone snapped it up in 1999, will not be rushed into his first, major strategic move since he took the helm six months ago.

"Why decide to do anything any earlier than you have to, if your actions are partly determined by what other people are doing?" noted one industry source.

"I think he's (Sarin) sitting there thinking it through and will probably decide whether or not to play on February 12."

CLOCK TICKS

As the February 13 bid deadline approaches, shareholders are concerned that Vodafone might risk its mid-investment grade credit rating to realize its ambition of controlling its U.S. destiny. The stock has dropped 10 percent over the last two weeks, valuing the company at about $167 billion.

But Vodafone declines to be drawn. "We have nothing to add from last week's statement," a spokesman said. "We are watching the situation, as ever, with shareholder value in mind."

The U.S. wireless market is one of the world's most competitive, with six rivals battling for customers and analysts long calling for consolidation.

Sources close to the situation say Cingular, the second- largest U.S. wireless group owned by SBC Communications Inc and BellSouth Corp, has already placed a bid tipped to be worth around $30 billion in cash. A successful move would create a group that pips Verizon Wireless by customers.

But sources have also named other possible bidders, including fifth-ranked wireless group Nextel Communications, Deutsche Telekom, which controls sixth-ranked T-Mobile USA, and NTT DoCoMo, the Japanese giant that already owns a 16-percent AT&T Wireless stake.

While the sellers are drumming up interest, AT&T Wireless' shares have surged around 30 percent to just over $11 since January 21 -- the day before the company officially but itself up for sale -- valuing it at a fraction over $30 billion.

TOUGH CALL

Vodafone's preferred strategy has always been to invest in the largest or second-largest operator abroad. AT&T Wireless ranks only third in the United States, and its market share of around 17 percent is being eroded by fierce competition.

A successful Vodafone bid would also do nothing to eliminate one of the six U.S. wireless operators.

With debt at just 7.4 billion pounds ($14 billion), analysts estimate Vodafone has around 20 billion pounds in excess capital at its disposal. And it might be able to sell its Verizon Wireless stake for another $20-$25 billion.

But a takeover would allow Vodafone to control an asset in the world's most powerful economy and bring its brand across the Atlantic. AT&T Wireless is one of only two U.S. groups to use GSM, a technology compatible with Vodafone's European networks. The only other U.S. GSM peer is T-Mobile USA.

Vodafone has also said it would like control of fast-growing Verizon Wireless, which uses CDMA -- a technology that remains incompatible with GSM. But Verizon Communications has said it would not "shy away" from buying Vodafone out.

To compound Vodafone's problems, analysts expect Verizon to pay only a fire sale price if Vodafone switches allegiances.

RIVALS

Meanwhile, company sources say NTT DoCoMo's Chief Executive Keiji Tachikawa is also interested in a full takeover and some industry sources familiar with talks say Japan's largest mobile phone operator has shown genuine interest in a bid.

But Tachikawa is in the final year of his third, two-year term. Company sources say a possible CEO change in the spring, DoCoMo's lack of experience in running non-Japanese firms and the fiercely-competitive U.S. market make a bid unlikely.

"(Talk of DoCoMo's interest) helps move the price up," notes one corporate financier. "Will they do it? They just might. But they've wasted so much money overseas. It would be tricky."

DoCoMo paid $9.8 billion for its 16 percent stake in AT&T Wireless stake in 2000 in a deal valuing the U.S. company at more than $60 billion during a heady bull market.

Analysts say Nextel would struggle to raise around $30 billion in cash and Deutsche Telekom's Chief Executive Kai-Uwe Ricke told journalists last week that Europe's largest former telecoms monopoly was "not in acquisition mode".

© Reuters