Top News
Wed, 6 Jan 1999, 7:48am EST
Vodafone Offers About $54 Billion in Stock for AirTouch, Topping Rival Bid
Vodafone Offers $90-Share in Stock for AirTouch (Update13)
(Updates shares in 6th paragraph; reported terms of offer
in 8th paragraph.)
London, Jan. 6 (Bloomberg) -- Vodafone Group Plc, the
U.K.'s largest mobile phone company, offered to buy AirTouch
Communications Inc. for about $54 billion, or $90 a share, in
stock, a person familiar with the proposal said.
The offer tops a bid by Bell Atlantic Corp. that valued
AirTouch at about $43 billion, people familiar with the
companies said. Bell Atlantic is unlikely to increase its offer
for the world's largest mobile phone company because it would
slash too deeply into earnings, analysts and investors said.
AirTouch's assets would enable Vodafone to flesh out its
existing European system, while the company's U.S. assets would
help Bell Atlantic fill in gaps in the western U.S. That's one
reason some figure the companies ultimately might agree to a
division of AirTouch, with Vodafone taking the international
assets and Bell Atlantic taking the U.S. operations.
The offer by Vodafone has ''put pressure on Bell Atlantic
to increase its bid,'' said Kevin Roe, an analyst at ABN Amro
Inc. in New York, who estimates AirTouch is worth more than $80
a share. ''AirTouch is in a perfect position of strength. They
don't have to sell.''
AirTouch, Bell Atlantic and Vodafone officials declined to
comment about the Vodafone offer.
Shares Rising
Vodafone rose 26 pence, or 2.34 percent, to 1,136.5p, after
surging 6 percent yesterday when news of the bid emerged. The
company's American depositary receipts rose 4 1/2 to a closing
high of 179 1/8 in New York yesterday. AirTouch rose 9 1/4 to 77
1/2, while Bell Atlantic rose 3 1/16 to 55.
One investor thinks Bell Atlantic won't be able to match
Vodafone's offer. The Wall Street Journal reported that the New
York company was offering about 1.4 shares of stock for each
AirTouch share, which would equal about $77 a share at today's
closing price.
Vodafone will offer half of an ADR, currently about $90,
plus $5 to $6 a share, according to a report in today's WSJ
interactive edition.
''Vodafone can pay the higher price and not have it be
dilutive,'' said Scott Vergin, money manager at Minneapolis-
based Lutheran Brotherhood Inc., which owns about 375,000
AirTouch and 250,000 Bell Atlantic shares. ''Bell Atlantic
investors would punish the stock if they upped their bid to over
$90.''
Among Biggest Mergers
A purchase of AirTouch would rank among the 10 largest
mergers and acquisitions ever. Any buyer also would assume
AirTouch's $2.8 billion in long-term debt.
AirTouch shareholders sued the company today, asking its
directors to make sure they get top dollar by entertaining
competitive bids. Investors filed four lawsuits in Delaware
Chancery Court in Wilmington.
Some analysts and investors said a three-way agreement is
still possible. Vodafone could buy AirTouch's international
operations and Bell Atlantic could take the U.S. operations to
form a nationwide network to compete against coast-to-coast
carriers AT&T Corp., Sprint PCS and Nextel Communications Inc.
''The ideal situation is to carve it up,'' said Stephen
Parlett, analyst at Montgomery Asset Management Inc. in San
Francisco, which owns shares of all three companies. ''That type
of combination would give the greatest price to AirTouch
shareholders.''
On Sunday, AirTouch and Bell Atlantic confirmed that they
are in talks. They didn't disclose any details.
AirTouch said it's reviewing Vodafone's proposal, though it
wasn't more specific.
Good Fit
Vodafone has been viewed as a possible partner for AirTouch
because their combined European businesses have little overlap
and they are partners already in Sweden and Egypt. AirTouch also
has businesses in the U.S. and the Asia-Pacific region.
Newbury, England-based Vodafone may prefer to acquire just
AirTouch's businesses in Europe, where wireless phone use is
higher and services operate on a single digital technology
across the continent. In the U.S., there are several digital
technologies and competition is more intense, analysts said.
A Vodafone-AirTouch combination would create the world's
biggest wireless phone company with 25 million customers and
operations on every continent. There are as many as 310 million
wireless phone subscribers worldwide, according to the Boston-
based market researcher Yankee Group.
Vodafone spokesman Mike Caldwell declined to say whether
Vodafone would consider making a bid just for AirTouch's
European operations if the current offer falls through.
''I think we'll keep the offer that we have and see what
happens,'' he said.
Still, a two-step transaction makes sense to some
observers.
''I don't see any reason why they couldn't first sell
domestic properties to Bell Atlantic and then sell international
to Vodafone,'' said Charles DiSanza, an analyst at Gerard Klauer
Mattison & Co. in New York, who has a ''buy'' rating on San
Francisco-based AirTouch.
Vodafone, with a market value of 34 billion pounds ($56
billion), would almost double in size if it acquired all of
AirTouch. Bell Atlantic's market value is about $85 billion.
Overseas Business
Vodafone, one of the first two U.K. wireless phone
companies, has increased its overseas business to about one-
third of its operating profit as it faces more competition in
Britain. It has stakes in more than 11 mobile phone companies
stretching from Fiji to France, although it has no business in
the U.S.
Most of AirTouch's growth is coming from its overseas
operations. In the third quarter, international revenue rose 43
percent, four times the 9 percent growth rate in the U.S. In
international markets, AirTouch said its customers increased 88
percent in the third quarter from a year ago. That's four times
the 22 percent growth rate in the U.S.
In November, Vodafone Chief Executive Chris Gent said the
company would enter the U.S. market ''if the right opportunity
arises.''
Past Courting
Vodafone has looked into buying AirTouch in the past and
determined that the combination would help it cut costs,
analysts said. Talks between the companies failed before because
AirTouch was setting up its joint venture with Bell Atlantic,
known as PrimeCo Personal Communications LP, analysts said.
On Monday, Vodafone said its customer base worldwide grew
by almost 1.8 million in the fourth quarter to more than 9.1
million. It had 5.17 million at the beginning of 1998.
If Vodafone bought only AirTouch's international
operations, it could enter the U.S. wireless market by acquiring
other carriers such as Omnipoint Corp. and Western Wireless,
said DiSanza of Gerard Klauer. Both companies use the same
technology as Vodafone, known as global system for mobile
communications, or GSM, he said.
Buying AirTouch would give Bell Atlantic a nationwide U.S.
mobile phone network. Bell Atlantic's pending purchase of GTE
Corp. for $77.9 billion will add even more mobile phone
customers.
Bell Atlantic
People familiar with the companies' plans said Bell
Atlantic wants to avoid charges for goodwill -- the difference
between book value and the price paid -- that could hurt its
earnings for as long as 40 years. AirTouch has a book value of
about $8.16 billion.
There's no accounting rule that would stop AirTouch from
selling part of its operations to Vodafone and another part to
Bell Atlantic, said Dan Noll, technical manager of accounting
standards at the American Institute of certified public
accountants.
Still, he said it could be difficult if the companies were
to use ''pooling of interests'' accounting.
''Pooling is always a very tough hurdle (as) companies have
to meet strict criteria from the SEC,'' Noll said. Selling
AirTouch in two parts ''would only add to the complexity.''
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