The nation’s largest independent cellular carrier last week entertained bids from two potential
acquirers in what could become a global bidding war.
AirTouch Communications Inc. last week confirmed it was in
discussions with Bell Atlantic Corp. for a possible tie-up and later confirmed it had received a proposal from Britain’s
largest mobile phone operator, Vodafone Group plc. Rumors of a possible third bid from MCI WorldCom Inc. called
into question whether other bidders would surface. However, MCI WorldCom on Friday said it would not pursue a bid
for AirTouch.
“Certainly there are dwindling portfolios of wireless assets on the scale of AirTouch, so we
would not completely rule out additional bidders,” said a BT Alex. Brown Inc. report authored by analyst Jeffrey
L. Hines, who noted Bell Atlantic and Vodafone provide the most synergies to AirTouch, making it unlikely that
additional bidders would be willing to pay as much as either of them.
“There’s always the possibility for more
bidders,” said Christopher Larsen, senior wireless analyst at Prudential Securities in New York. “I would
not be surprised to see more bidders step up or at least take a look at the company.”
Larsen said other
potential bidders could be waiting to see what Bell Atlantic ultimately bids for AirTouch, a decision that may be held
up while the companies work out accounting issues.
Bell Atlantic reportedly is willing to bid $45 billion for
AirTouch, or about $72 per share, while the Vodafone counteroffer was said to be about $54 billion, or $90 per share.
No firm bid prices have been confirmed by any of the players.
Bell Atlantic
A marriage between Bell Atlantic
and AirTouch would create the largest wireless carrier in the United States, with about 18 million wireless subscribers,
including more than 5 million subscribers from the pending merger of Bell Atlantic and GTE Corp. The combined
company would control about one-third of the domestic wireless market and have the reach of a national carrier, with
strongholds on both coasts and a significant presence in every region.
Bell Atlantic and AirTouch together own
personal communications services carrier PrimeCo Personal Communications L.P. PrimeCo originally was formed by
Bell Atlantic and Nynex Corp., which have since merged, and AirTouch and U S West Inc. AirTouch now controls U S
West’s former cellular properties and its interest in PrimeCo.
A Bell Atlantic/AirTouch deal would create some
overlaps, mainly related to GTE’s properties. AirTouch and GTE’s cellular properties overlap a total of 8 million
consolidated pops; GTE’s PCS and AirTouch’s cellular properties overlap a total of 7 million pops; and PrimeCo’s and
GTE’s properties overlap a total of 17 million pops, according to Prudential’s Larsen. The overlap of GTE’s PCS and
AirTouch’s cellular properties could be addressed by selling part of the PCS spectrum, or by changes in the Federal
Communications Commission’s rules that would raise the spectrum cap above 45 megahertz, he said.
The overlap
“is not a deal killer, but it is definitely something that will have to be addressed,”said
Larsen.
Vodafone
A marriage between Vodafone and AirTouch potentially could create one of the largest
wireless operators in Europe.
“In addition to being the largest U.K. operator, Vodafone also has significant
ownership interests in other Western European markets as well as Australia and Hong Kong,” said the report.
“AirTouch has European assets including ownership share in Belgium, Portugal, Italy, Germany, Poland and
Spain.
“A combination between Vodafone and AirTouch would, therefore, create an almost pan-European
network,” said the report.
Vodafone and AirTouch also are partners in Globalstar L.P., a company that plans
to offer global wireless services through a satellite network.
“It makes sense for Bell Atlantic to acquire
AirTouch’s domestic properties, and it makes sense for Vodafone to acquire AirTouch’s international properties,”
said Tim O’Neil, an analyst with SoundView Financial Group based in Stamford, Conn. “As far as [AirTouch’s]
international properties go, they line up almost perfectly with Vodafone’s. They complement each other
ideally.
“Domestically, it’s like two pieces of a puzzle coming together with a Bell Atlantic/AirTouch
deal,” continued O’Neil.
The prospect of a bidding war could bring Vodafone and Bell Atlantic together in a
plan that would divide AirTouch’s domestic and international properties between the two bidders, speculated O’Neil. If
the two companies work together, the deal would be valued between $72 and $82 per share, while a bidding war could
drive the price into the $90 per share range, he said.
“Both of these companies have a vested interest in
acquiring this property without too many other alternatives,” said O’Neil.
National scope
Creating a
national scope is the driving force behind Bell Atlantic’s interest in AirTouch, said analysts. The importance of a
national presence is being driven by pricing plans such as AT&T’s Digital One Rate plan.
“Without a national
holding, carriers just aren’t going to be very competitive,” said Bob Egan, research director at Gartner Group in
Stamford, Conn. “A big footprint is a good footprint.”
Egan said Bell Atlantic’s deal with GTE was
primarily a counteroffensive to SBC Communication Inc.’s national-local plan announced with its acquisition of
Ameritech Corp. last year, while the AirTouch bid is an attempt to build a national wireless presence. Egan also said a
Bell Atlantic/AirTouch merger could close sooner than the Bell Atlantic/GTE deal because the FCC might see the deal
as favorable to the national competitive environment of the wireless industry.
“An AirTouch merger with Bell
Atlantic would do much to reassemble AT&T’s pre-breakup domestic wireless footprint, especially in the Northeast and
West,” said a Janco Partners Inc. report. “We would argue that the merged companies would be the single
most significant force in domestic wireless since their franchises are primarily based on established cellular systems,
whereas Sprint PCS has no cellular exposure and AT&T is far more heavily dependent on PCS than would be
[AirTouch/Bell Atlantic] to round out its domestic wireless footprint.”
Pressure
Analysts said a tie-up
between Bell Atlantic and AirTouch would put pressure on carriers such as BellSouth Corp. and SBC, which itself has
been an aggressive acquirer, mainly in deals driven by wireline interests.
“Four nationwide carriers is different
than three nationwide carriers,” said Prudential’s Larsen. “It’s one more entity that can price national
wireless services at a profitable level.”
“You can take it to the bank that a Bell Atlantic/AirTouch deal
will cause SBC and BellSouth to react,” said Egan.
SBC might look to pull together a footprint of Global
System for Mobile communications carriers such as Western Wireless Corp. and Omnipoint Communications Inc., said
analysts.
Some analysts also predicted a combination of BellSouth and AT&T Wireless Services Inc. would make a
nice fit in terms of their markets and their chosen Time Division Multiple Access technology.
While out of the
bidding for AirTouch, MCI WorldCom also may be feeling the pressure to step up its wireless offering to compete with
AT&T, which can provide discounts on both wireless and long-distance service.
Analysts last week said an MCI
WorldCom deal with a national wireless player like Nextel Communications Inc. fits in better with its strategy of
attracting high-use business customers. MCI WorldCom shareholders also showed their disdain for acquisitions that are
dilutive to earnings, mag
nified by the hit its stock took on rumors it was interested in AirTouch.
Furthermore, any
independent cellular carrier still left, which includes primarily rural carriers, are prime acquisition
targets.
“This is the year,” said Gartner Group’s Egan. “1999 will set off a round of major
consolidation in the wireless industry.”
