Posted on 02/13/2004 11:21:41 AM PST by El Conservador
LONDON (Reuters) - The world's largest mobile phone firm Vodafone Group Plc (VOD.L) and U.S rival Cingular Wireless were poised on Friday for a head-to-head bid battle that could value struggling AT&T Wireless (NYSE:AWE - news) of the U.S. at around $35 billion.
As the clock ticks to a 5 p.m. EST (2200 GMT) bid deadline, sources close to talks said Vodafone was putting the final touches on a bid, while Cingular was ready to fight back. But final bid strategies were expected to be left to the 11th-hour.
"What happens in these auctions is that everybody is making decisions until the last minute about how they want to play it and then after that, the ball is in the sellers' court," one source close to the talks said.
Vodafone is expected to submit an offer of about $35 billion, or around $12.50 per share, trumping an informal $30 billion bid from Cingular, the number-two U.S. wireless group controlled by SBC Communications (NYSE:SBC - news) and BellSouth (NYSE:BLS - news).
Vodafone, which has one of the strongest takeover records in the industry, said on Thursday it was still exploring whether a deal with AT&T Wireless, the number three U.S. mobile group, was in investor interests and has declined to comment further.
While some Vodafone investors remain unconvinced about the merits of any knockout offer, a growing number believe Chief Executive Arun Sarin will bid for an asset that would give the group long sought-for control of a company in the world's most powerful economy and bring its brand across the Atlantic.
"We are supportive of Vodafone, but on the information currently available, we are skeptical as to whether the deal at the prices talked about will generate an acceptable financial return," said David Cumming, the head of UK equities at Standard Life Investments.
Hopes of a bid battle have sent shares in AT&T Wireless to 12-month highs of $11.98, valuing the group at $32.56 billion. Vodafone shares, which have slid about five percent since AT&T Wireless called for bids on January 22, rose 3.6 percent to 137p by 1530 GMT.
"Everyone's getting much more excited about this," said one U.S. hedge fund manager with shares in AT&T Wireless. "We're pretty happy here, although I'd be happier if I knew Sarin was handing over a check for $35 billion."
DOCOMO BOWS OUT
Vodafone and Cingular are the most serious contenders for AT&T Wireless. Despite speculation of a possible counter-bid by AT&T Wireless's Japanese shareholder NTT DoCoMo (9437.T), a DoCoMo (news - web sites) source said the group had decided against bidding.
Sources close to talks said it was unlikely that AT&T Wireless, which is 16-percent owned by DoCoMo, would make any announcement on Friday. An official auction result is expected on February 29, although one source familiar with talks said there could be a decision as early as Tuesday.
Market reaction to a Vodafone bid, which analysts say could dilute earnings for around four years, hinges in part on whether the group can negotiate a satisfactory price for its 45 percent stake in U.S. mobile market leader Verizon Wireless (NYSE:VZ - news).
The stake is valued at $20-$25 billion. But analysts say an exit could leave Vodafone with a tax bill of up to $6.0 billion.
Analysts say Vodafone could cut the tax hit if it struck a swap deal in Italy with U.S. partner Verizon Communications (VZ.N), which controls Verizon Wireless. Verizon could exchange its 23.1 percent stake in Vodafone-controlled Italian carrier Omnitel for part of Vodafone's Verizon Wireless holding.
Under its joint venture agreement, Vodafone also has a rolling option to sell up to $20 billion of its Verizon Wireless stake back to Verizon Communications in two tranches until 2007. It could also list the stake in an initial public offering.
BANKS AWAIT BACON CALL
Market experts say a $30 billion-plus bid by Vodafone might not even pose risk to its "A" mid-investment grade credit rating, although analysts warn that outbidding Cingular, which can sweeten its bid with the cost cuts it expects from merging two networks, would be tough to justify.
But Vodafone's financial strength is undisputed. Deutsche Bank analysts have estimated the group has around 20 billion pounds ($38 billion) in excess capital at its disposal and bankers believe it could raise up to $30 billion for purchases.
"People are throwing themselves at Vodafone with offers, but our sense is that Vodafone has the confidence to wait," said one banking source. "Raising funds is not an issue. (Vodafone Group Treasurer) Gerry Bacon will make the calls when he's ready and tell everyone the terms and conditions that he expects to raise funds on. We wait to be called to the court of Bacon!"
Cingular, meanwhile, has made no secret of its desire to win AT&T Wireless. It says it can slash up to $3 billion in annual costs in a merger by cutting staff and overlapping businesses.
SBC said in January the U.S. mobile industry, in which six major national brands and a handful of regional players battle for market share, was ripe for mergers -- and that it would consider certain purchases even if they hurt earnings.
A Cingular takeover would also eliminate one rival in one of the world's most overcrowded mobile markets, easing competition. (Additional reporting by Tessa Walsh, Carolyn Cohn in London, Yukari Iwatani Kane in Tokyo and Jessica Hall in New York) ($1=.5288 Pound)
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