Bidding war for AT&T hots up as offers raised to $38bn

The bidding for AT&T Wireless intensified yesterday as Vodafone and Cingular increased their bids for the third-largest US mobile operator to more than $38 billion (€29.7 billion).

AT&T Wireless was expected to make a preliminary recommendation late last night.

The decision will come after a dramatic weekend in which Vodafone and Cingular both raised their bids, and follows a month-long auction, which few expected to turn so competitive.

Both companies made similar-sized bids of $12.50-$13 a share over the weekend, but increased these to $14 a share yesterday as negotiations with the AT&T Wireless board continued.

News of the new bids caused the Vodafone share price to fall more than 2.5 per cent to 132½p yesterday as investors grew concerned that the company could pay too much.

The Vodafone and Cingular bids represent a premium of more than 18 per cent over the AT&T Wireless closing price of $11.82 on Friday. The shares, which traded as low as $5.17 a year ago, have risen sharply since the beginning of the year in anticipation of a deal. US markets were closed yesterday for the Presidents' day holiday.

When it emerged in January that Cingular was once again in talks to buy AT&T Wireless, observers were sceptical that a deal would be consummated after more than two years of on-off talks between the two companies and T-Mobile, the rival operator controlled by Deutsche Telekom.

Many bankers have felt that AT&T Wireless has, over the past month, been trying to create the impression of an auction in an effort to squeeze a better price out of Cingular, after detailed talks between the two foundered at a valuation of about $11 a share, or almost $30 billion.

That view was reinforced as other contenders faded into the background. NTT DoCoMo, the Japanese mobile phone group with a 16 per cent stake in AT&T Wireless, looked at making an offer but decided against after it ran into opposition from managers and investors in Japan.

But as the auction progressed towards the deadline for bids last Friday, it became clear that Vodafone was serious about bidding and was willing to overcome the hurdle of its 45 per cent stake in Verizon Wireless to submit a formal offer.

The level of interest in AT&T Wireless surprised many analysts. The company has lost customers in recent months as a result of the arrival in the US of wireless number portability and the botched introduction of new customer management software.

But the determination of the two bidders reflects their circumstances. BellSouth and SBC, the regional telecoms groups that control Cingular, have identified wireless as their best growth opportunity as they face increased competition in their traditional business.

Meanwhile, Vodafone showed how keen it was to control an operator in the world's largest market.