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AT&T rules out Vodafone bid for now

Reuters London
Last Updated : Jan 28 2014 | 1:02 AM IST
US mobile group AT&T has ruled out a bid for Britain's Vodafone for now, with banking sources saying a US spying scandal and a surge in European telecom shares may have disrupted a deal that many think could still happen.

AT&T, the second-largest US mobile operator, sparked speculation it could be interested in a potentially £70 billion-plus ($115 billion) deal for Vodafone after its chief executive said in October there was a "huge opportunity" in Europe to invest in mobile broadband.

However, after weekend news reports it had met European regulators to sound them out about a deal, AT&T was asked by Britain's takeover watchdog to clarify its position and said in a brief statement on Monday it did not intend to make a bid.

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The statement means AT&T cannot make an offer for at least six months, unless Vodafone invites it to do so or a third party enters the fray. Vodafone's shares fell as much as 7 per cent. Analysts said the clarification could provide a reality check for the wider European telecoms sector, which has surged about 24 percent in value over the past year compared with an 11 percent rise in Europe's top share index. The sector has been lifted by a string of takeover deals, despite few signs of an improvement in underlying trading.

But analysts also said a deal could still make sense for AT&T. The US group is facing a more competitive home market and may be attracted by a European market which many think could soon benefit from economic recovery and the sort of growth in superfast 4G broadband seen in the US.

One banker hoping to advise AT&T on any future Vodafone bid told Reuters the British group, which is in the process of selling out of a US joint venture, remained the perfect partner for AT&T because of its presence across Europe.

AT&T was simply not ready to make an offer, the banker said, adding matters had been complicated by the discovery of a mass spying programme by the US National Security Agency (NSA), which has sparked particular outrage in Europe.

Another sector banker said a recent surge in Vodafone's share price due to the US sale and speculation of a takeover bid might also have deterred AT&T. Vodafone shares are up 38 per cent over the past year.

Before any bid, AT&T would have to win over its shareholders, some of whom have questioned the wisdom of entering markets such as Britain, Germany and Spain where fierce competition has combined with unpredictable regulation to hit telecoms firm's earnings and prospects.

Another complication for AT&T is that it is unlikely to want to run Vodafone's businesses in emerging markets such as India, South Africa and Turkey, which were hit last week by a sell off in their currencies.

Advantages of a delay
AT&T could look at other European operators, such as British market leader EE, though that would give it a much more limited exposure to Europe, and a fall in the share prices of EE's parent companies - Orange and Deutsche Telekom - showed little sign of investors betting on that.

Citi analysts said a six month delay in bidding for Vodafone could have advantages for AT&T, as it would allow the British firm to complete the $130 billion sale of its stake in US venture Verizon Wireless and give investors time to decide on a value for the remaining business.

Analysts think that value is likely to settle around 60 billion pounds, with a bid premium of around 20 per cent taking the price tag of any takeover deal to over £70 billion.

Regulators would have also given their decision by then on Telefonica's takeover of KPN's German mobile business, which is seen as a key test of whether competition authorities are more open to consolidation in Europe.

In addition, AT&T would have a better idea of how telecoms regulation will evolve in Europe this year: a package of reforms intended to spur investment in networks and encourage cross-border services is now under debate in the European Parliament.

The current crop of regulators that influence the sector will also be replaced after European elections in May.

M&A everywhere
A series of telecoms and cable industry deals has helped fuel speculation that competition regulators could loosen the leash on mobile firms wanting to merge in Europe to help them cope with fierce competition that has driven down prices.

Vodafone itself has recently agreed to buy Germany's Kabel Deutschland and a person familiar with the situation said it was also in talks to buy Spain's main cable operator Ono.

US cable group Liberty Global on Monday clinched a takeover of Ziggo in deal valuing the Dutch firm and its debt at euro 10 billion ($14 billion).

Espirito Santo analyst Robert Grindle, who downgraded his rating on Vodafone shares last week, said AT&T may return once it sees signs of trading in Europe starting to stabilise. "We downgraded because one of the issues was that we didn't think a deal would happen as quickly as people thought," he said.

At 1410 GMT, Vodafone shares were down 3.3 per cent at 224.8 pence, within a European sector down 1.3 per cent.

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First Published: Jan 28 2014 | 12:19 AM IST

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