Vodafone loses out to Cingular in bid to buy AT&T Wireless

Vodafone suffered its biggest setback for more than a year yesterday as US group Cingular snatched control of America's third-largest mobile phone company, AT&T Wireless, with a dramatic last-minute all-cash bid of $41 billion (€31.9 billion).

The deal, the largest cash acquisition in US corporate history, will create the country's largest mobile phone company. The business, with 46 million customers, will be larger than market leader Verizon Wireless, in which Vodafone has a 45 per cent stake.

Vodafone said yesterday it had pulled out of the two-way auction because "it was no longer in its shareholders' best interests to continue discussions".

Shareholders had become increasingly concerned during the 10-day auction process that Vodafone would overpay for AT&T Wireless just to have full control of a business on the other side of the Atlantic.

Cingular, which operates the second-largest network in the US, is expected to generate several billion dollars of savings from the deal. Analysts were not convinced that Vodafone could extract similar synergies.

Since news emerged that Cingular had made an informal offer in mid-January, Vodafone's shares have underperformed the rest of the market, cutting the value of the company by more than £11 billion sterling (€16.3 billion). Yesterday the stock gained 6p to end the day at 138.5p - a rise that put back £4 billion on its valuation.

The Vodafone rise led to a 1.2 per cent rise in the FTSE 100, its biggest jump in two months. The news of the deal boosted US stocks last night, with the Dow Jones ending up 0.8 per cent at 10,715.

However, as Vodafone will not need to purchase large amounts of US dollars, the American currency slipped again. Despite some reasonably positive US data, the euro rose to $1.2877 at one stage, close to its all time- high of just under $1.29, before slipping to $1.2843 later in New York.

Market talk was dominated by AT&T. There has been talk that Vodafone was bidding to increase the amount that Cingular would have to pay, but Vodafone insiders yesterday insisted the group was serious in its attempt and they were disappointed it had failed.

The defeat marks the most significant setback for Vodafone since December 2002, when media conglomerate Vivendi outbid it for control of French mobile phone operator SFR.

It is also the first disappointment for Vodafone chief executive Mr Arun Sarin, who took over last July. Analysts said his decision to put shareholder interest before empire building had helped dispel fears that he was trying to match his, predecessor, Sir Christopher Gent, as a deal-maker.