Yesterday, Vodafone conceded defeat in its bidding battle with Cingular Wireless for ownership of AT&T Wireless. Cingular will now jump to the top of the US market, as the merged company will have more mobile phone subscribers than any other network. As of today, the combined company would have 46 million customers and spectrum in 49 states and coverage in 97 of the top 100 markets.
Cingular is paying US$41 billion for the company, trumping the reported US$38 billion that Vodafone offered. These figures are significantly higher than had been expected and apparently come after the bids submitted last week were rejected by AT&T Wireless as too low.
Cingular says that it expects to achieve significant operating synergies through this acquisition by consolidating networks, distribution, billing, procurement, marketing, advertising and other functions. The company expects to generate more than US$1 billion in operating expense and capital expenditure savings in 2006, and in excess of US$2 billion in annual savings beginning in 2007.
The boards of Cingular and AT&T Wireless have approved the merger agreement. SBC Communications and BellSouth have committed funding to Cingular for the all cash deal. Funding requirements for SBC will be approximately US$25 billion and for BellSouth, approximately US$16 billion. Cingular expects the combined operations will generate positive free cash flow in 2005.
SBC's and BellSouth's proportionate equity stake in Cingular will remain unchanged following the transaction, with SBC holding 60% and BellSouth 40% of the equity. Management control will remain 50-50.
Japan's NTT DoCoMo purchased a 16% stake in AT&T Wireless for US$9.8 billion in January 2001, but says that it will sell its stake to Cingular and withdraw from the market. DoComo should get somewhere in the region of US$6.6 billion for its stake, showing a loss of US$3.2 billion over the past three years.
For its part, Vodafone says that it withdrew from the auction when it concluded that it was no longer in its shareholder's best interests to continue discussions. The company said that it remains committed to its existing position in the US market with its partnership in Verizon Wireless.
Julian Hewett, Ovum's Chief Analyst commented that "The trouble with offering an opinion on a takeover bid is that you are either 100% right - or 100% wrong. Fortunately for me - and for Vodafone shareholders - Vodafone has just confirmed that it has pulled out of the bidding for AT&T Wireless. Vodafone shares have leapt by 7%. Cingular has confirmed its bid at $15 cash per share, valuing AT&T Wireless at $41 billion.
"It's a very full price for a business with falling subscriber numbers and profits. If Vodafone's game was to drive up the price, then it's certainly succeeded."
"We expect Verizon Wireless to continue to lead the business market, partly because of its new CDMA2000 high-speed data services. Meanwhile, Sprint PCS seems to be struggling. Perhaps they will become a takeover target for Verizon Wireless?
"Where now for Vodafone? It will now need to take a longer-term view in the US. With 3G, the technical differences between GSM and CDMA will get smaller. Roaming may become possible for Vodafone's business customers. (Currently they roam on T-Mobile's network.) Perhaps Vodafone can develop a virtual 3G service on Verizon Wireless' network.
"Attention will now turn to France, where the period during which Vodafone was not allowed to bid for the whole of SFR has recently expired. Vivendi shares have risen on today's news.
"The observation I enjoyed most was that - for the same price - Cingular could have afforded to pay every single AT&T Wireless subscriber at least $1,000 to sign up to Cingular's service instead! An expensive way of acquiring customers, no?" he says.
Another side effect of the takeover is that we can reasonably expect the Cingular brand name to arrive in Bermuda shortly. AT&T Wireless purchased a GSM network operator there last year and recently rebranded it with the AT&T brand. A second rebranding should appear shortly, which will be good news for the local printing firms and sign painters."
Posted to the site on 18th February 2004
Posted to: www.cellular-news.com/story/10637.php