Only time will tell whether Arun Sarin and other Vodafone Group plc execs were snookered by indefatigable Yanks or all the wiser for hitting the sack at a proper hour.
For sure, Cingular Wireless L.L.C.’s winning $41 billion bid for AT&T Wireless Services Inc. made for big headlines and countless analyses by experts who couldn’t bring themselves to admit they didn’t know how the deal will turn out.
Aside from several investment banks pocketing a reported $78 million in fees and the likelihood the merger will be approved before the next U.S. president is chosen, this is largely uncharted territory. (Have you noticed how corporate giants seem to be rushing to get in line for merger sign-off now that Democrats suddenly appear to have a chance of winning the White House in November?)
The AT&T Wireless-Cingular transaction opens a brand new chapter in the 20-year-old cellular industry. Growth-accounting for 155 million U.S. subscribers-has leveled off, and serious consolidation has begun. How it will all play is far from clear.
Did Vodafone, the world’s top mobile-phone operator, win by losing out to Cingular, thereby saving itself $38 billion for another wireless acquisition? Vodafone would have you believe so, despite its clear desire to brand itself in the states. Suddenly all eyes are on Sarin.
On the other hand, the union of AT&T Wireless and Cingular should give rise to a new mobile-phone entity-the biggest in the land-that does business better than either carrier did alone. But what makes Cingular, jointly owned by SBC Communications Inc. and Bell South Corp., so smart in paying $41 billion for a wireless operator whose claim to fame of late is losing customers? One of the most amazing aspects of the deal is the AT&T brand, historically one of the most powerful and cherished worldwide, will go by the wayside.
One might argue AT&T Wireless is not so much a strategic purchase for Cingular as it is a pricey insurance policy for two Bell telephone companies whose legacy landline business increasingly draws frowns from Wall Street.
It could also be said Verizon Wireless, the No. 1 mobile-phone operator that so prides itself on service quality, is the real winner. If the new Cingular cannot stop the hemorrhaging-in the form of churn-it will have paid dearly to give customers away to Verizon Wireless. The difference between Verizon Wireless’ 37.5 million subscribers and the 48 million of Cingular-AT&T Wireless is not that great. Cingular’s would-be lead is not insurmountable. Shareholders are not shy about filing lawsuits for expensive missteps.
AT&T Wireless’s $41 billion price tag should increase the market valuation of Verizon Wireless, Nextel Communications Inc., T-Mobile USA and Sprint PCS, the remainder of the Big Six.
It will be another merger or so before this becomes an antitrust story. What will consolidation do to industry’s argument that fierce competition necessitates more deregulation?
If the airline industry is any guide, it could get messy before it’s all over.
Meantime, Splatman rules.
