2004 Thread: Vodafone Makes Bid For AT&T Wireless - Second Bids Due - WSJ

Vodafone Makes Bid
For AT&T Wireless

Vodafone Group PLC, the world's largest wireless carrier by revenue, has made a bid of about $35 billion (€27.47 billion) for AT&T Wireless Services Inc., people close to the situation said, roughly matching the bid made Friday by Cingular Wireless.


By Anita Raghavan in London and Almar Latour and Jesse Drucker in New York



As the bids submitted are similar, AT&T Wireless's advisers asked the companies to hand in a second round of offers on Sunday, turning the contest to buy the third-largest U.S. wireless carrier into a global bidding war.

People familiar with the situation said Nextel Communications Inc. and NTT DoCoMo Inc. didn't enter a bid, meaning the contest to buy AT&T Wireless is a two-horse race. People close to the situation said a decision between Vodafone and Cingular could come soon, though AT&T Wireless has given itself two weeks to make a decision, if necessary.

Vodafone, which offers mobile-phone services in much of Europe and Japan, wants to acquire AT&T Wireless so it can extend its brand and services into the U.S.. The Newbury, United Kingdom, operator owns 45% of the leading U.S. operator Verizon Wireless, but it is aiming to sell that stake to Verizon Communications Inc., which owns the other 55%.

However, many of Vodafone's biggest shareholders doubt whether Vodafone should pay more than $30 billion for AT&T Wireless, saying such a deal could dent earnings for several years to come. The extent of that dent depends on how much Verizon is willing to pay for its stake in Verizon Wireless and how much tax Vodafone will have to pay on that deal. Under U.K. stock-exchange listing rules, Vodafone would almost certainly have to seek the approval of shareholders to complete the acquisition.

Vodafone's board gave the go-ahead for a bid on Friday, hours before the deadline imposed by AT&T Wireless, a person familiar with the situation said.

Up until now, analysts had considered Cingular the favorite to acquire AT&T Wireless, figuring it could afford to pay more than Vodafone because it could save costs by combining its existing network with that of AT&T Wireless. Cingular's parent companies, BellSouth Corp. and SBC Communications Inc., are desperate to boost their wireless business to offset declining or flat revenues in their fixed-line businesses. Acquiring AT&T Wireless would more than double Cingular's wireless revenue and allow it to combine the two companies' marketing functions, retail outlets and other operations.

Buying AT&T Wireless would also boost Cingular's available radio-wave spectrum in several key markets, making it easier to offer national calling plans. On the other hand, if Cingular allows Vodafone to acquire AT&T Wireless it is likely to face even stiffer competition for subscribers than it does today. Still, some observers have begun to question whether even Cingular should pay $35 billion for AT&T Wireless, given the valuations of peers, such as Nextel or Sprint PCS.

Nextel, itself, did express an interest in acquiring AT&T Wireless in January, but not in any formal way, people familiar with the situation said.

NTT DoCoMo of Japan has decided against making its own bid to acquire AT&T Wireless, but may still negotiate with other potential buyers to keep a stake in the company, people familiar with the negotiations said.

DoCoMo, which owns 16% of AT&T Wireless and has the right to buy shares that would bring its stake to slightly more than 17%, decided at a Friday board meeting against trying to buy the rest of the company. DoCoMo and other potential bidders had until Friday to put in bids for AT&T Wireless.

DoCoMo's decision didn't come as a surprise: The company has been forced to write down the bulk of its $10 billion investment in AT&T Wireless, and most observers thought DoCoMo would be too scarred by those losses to pump a lot more cash into the company.

Yet people familiar with the negotiations say some DoCoMo executives favored trying to take over the U.S. carrier outright in order to establish a solid beachhead in the U.S. market, one of the world's most important battlegrounds for cellphone subscribers that isn't yet dominated by a single player.

DoCoMo's minority investment has given it little clout over AT&T Wireless in the businesses it wants to promote -- high-speed third-generation, or 3G, phone services and DoCoMo's "imode" Internet technology. AT&T didn't adopt imode, and reneged on part of its initial promise to roll out 3G services in the U.S.

Some DoCoMo executives also thought buying AT&T Wireless would keep a crucial pawn out of the hands of competitors such as Vodafone, which since 2001 has been going head-to-head with DoCoMo in its home market in Japan. DoCoMo's board ultimately decided against a bid because of the company's lack of experience in operating a carrier outside Japan, and the large amount of money an acquisition would require, people familiar with the situation said.

DoCoMo and its parent, Nippon Telegraph & Telephone Corp., declined to comment on the negotiations.

Now that DoCoMo is no longer a potential bidder for AT&T Wireless, it may approach other bidders and negotiate a possible partnership. DoCoMo would be willing to invest more money to maintain its stake in AT&T Wireless, which would be diluted by a merger with a firm such as Cingular, the people familiar with the situation said. The additional investment could run to about $2 billion.

That money could come in handy for a buyer such as Cingular, which saw the potential cost of the acquisition rise by several billion dollars as competition intensified in recent weeks.

AT&T Wireless, which was spun off from AT&T Corp. in 2001, has reported quarterly net losses for five of the past 10 quarters. Facing the prospects of increasing competition from several fronts -- and continuing operational difficulties -- the company agreed to the auction after several companies expressed interest.

SBC Communications declined to comment, while BellSouth wasn't available to comment. AT&T Wireless, of Redmond, Washington, declined to comment. A spokeswoman for Nextel, of Reston, Va., also declined to comment. A spokesman Vodafone Group declined to comment

 

Vodafone Makes Bid For AT&T Wireless - Second Bids Due - WSJ

Vodafone is a great company. Vodafone will straighten out ATT wireless, they have done a great job with takeovers in the past, and quite frankly just seem to do it right. Vodafone would stake a major claim in the US market with this.