AT&T Wireless Services Inc.’s clouded future began to clear last week as suitors looking to acquire the world’s ninth-largest wireless carrier were expected to place their final bids by AWS’ self-mandated Feb. 13 deadline. Cingular Wireless L.L.C. and Vodafone Group plc rose to the top of potential victors in the multibillion-dollar contest.
Both Cingular and Vodafone were expected to make bids at a healthy premium over AWS’ $27.5 billion market capitalization, with published reports indicating Cingular’s proposal would be designed to top an expected $34 billion bid from Vodafone. Current AWS minority-shareholder NTT DoCoMo Inc. was reported to have notified AWS management that it would not submit an offer to increase its stake in the U.S. carrier, while bids from other potential suitors including Deutsche Telekom AG and Nextel Communications Inc. were not expected to materialize by the deadline.
AWS’ management said it would make a final decision on the winner by the end of the month, though some industry sources said the company’s board was planning to mull over the submissions the day after the bidding deadline with an announcement coming as soon as this week.
Cingular remained the lead character in the process with most industry analysts expecting the carrier, backed by parent companies SBC Communications Inc. and BellSouth Corp., to do whatever it takes to acquire its smaller rival.
“I think Cingular needs it more than the others and has the resources to pull it off,” said Gartner’s telecommunications analyst Tole Hart.
Cingular remained quiet on its plans, but was reported to have submitted an unofficial $30 billion offer for AWS late last month.
Cingular also won backing from the Communications Workers of America union that said last week it would urge its half-million members and retirees that hold AWS stock to support a deal with Cingular.
“This is the only potential merger that creates the necessary scale to compete in the U.S. wireless marketplace,” said CWA President Morton Bahr. “Cingular’s bid promises a clean, one-step transaction that will receive speedy regulatory approval.”
CWA added it had confidence in SBC, BellSouth and Cingular’s leadership and that a merger would “enhance long-term value for shareholders.”
Vodafone remained guarded on its plans, releasing a statement early last week that “it continues to monitor developments in the U.S. market and is exploring whether a potential transaction with AT&T Wireless is in the interests of its shareholders.”
Confounding Vodafone’s plans are the company’s current ties with Verizon Wireless, which involve a 45-percent interest stake, but includes put options over the next several years that would force Verizon Communications Inc. to pay in excess of $20 billion for Vodafone’s minority interest. Both companies have expressed satisfaction with their current relationship, though analysts have always questioned Vodafone’s claim of contentment in owning a minority interest in a CDMA-based carrier instead of owning all of a GSM-based operator.
Further clouding Vodafone’s plans were reports last week that the company would forsake a bid for AWS and would instead try to acquire Verizon Communications in an attempt to gain complete control of Verizon Wireless. Credit Suisse First Boston said in a report that a Vodafone acquisition of Verizon Communications was unlikely, but that if Vodafone did pull it off, it would be able to recoup some of the $100 billion to $150 billion total costs by spinning off Verizon’s wireline assets.
Despite the seeming two-horse race for AWS, some industry analysts predict the eventual pool of bidders will include a number of surprises.
While DoCoMo reportedly pulled itself out of the running, the Japanese telecom giant maintains enough clout in the industry and has access to enough financial resources to make a compelling offer to AWS. In addition to gaining a foothold in one of the world’s most lucrative wireless markets, analysts noted an acquisition by DoCoMo would stymie some of its competitors.
“We would point out that NTT DoCoMo competes with [Vodafone] worldwide and would not be supportive of bringing them into the U.S. market,” said Legg Mason Wood Walker Inc. analyst Craig Mallitz, who added that by not submitting a bid, DoCoMo would regain its board position at AWS to evaluate potential offers.
Iain Gillott, founder and president of consulting firm iGillottResearch, said there would be a list of investment bankers willing to help DoCoMo fund an acquisition if the company was so inclined.
“I would never count DoCoMo out,” Gillott said, adding a number of other dark horses could emerge including MCI and Spain’s Telefonica, and that the opportunity to acquire AWS is a rare occurrence that would be hard to pass up.
“How often is industry provided with a chance to buy one of the largest wireless operators in one of the strongest markets in the world,” Gillott noted. “This chance may never come again.”
Gillott added that he would be most concerned if the bidding pool turns up bare as that could mean most of the interested parties found deeper problems with AWS than have been reported.
“I would be really worried if only one or two bidders end up making a formal bid for AT&T Wireless,” Gillott explained. “Most of the companies interested will have been provided with more detailed access to [AWS’] finances and operations and if they walk away that would indicate there are bigger problems with [AWS] than were thought.”
Some of those potential problems were raised last week when published reports claimed AWS lost 4 percent of its customer base during the first month of the year and that average revenue per user dropped nearly 10 percent compared with January 2003. AWS also has reportedly begun trimming its workforce with Seattle-area newspapers indicating as many as 1,000 employees at the carrier’s Redmond, Wash., campus would be let go beginning this week.
