Vodafone offers $35bn for AT&T

Vodafone has offered almost $35 billion (€27.5 million) for AT&T Wireless, putting it head-to-head with Cingular of the US, which made a similar-sized offer, in cash, on Friday.

Vodafone, the world's largest mobile phone operator, has offered $12.50-$13 a share in a bid to develop its own American network, setting up a two-way battle with Cingular, the number two US wireless group.

NTT DoCoMo, Japan's dominant mobile operator, which owns a 16 per cent stake in AT&T Wireless, ruled itself out of the bidding on Friday and Nextel, the rival wireless group that had been considering making an offer, is not thought to be a serious player in the auction.

The AT&T Wireless board was meeting last night to consider the bids and people close to the process said a preliminary recommendation could be made late last night or today.

The Vodafone and Cingular bids represent a premium of 6-10 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.

Cingular, which is jointly owned by BellSouth and SBC, the regional telecom groups, is considered to be in a stronger position because it can count on cost savings of about $3 billion when deciding how much to bid.

The value of Vodafone's offer could depend on how much cash it has included in its bid and the reaction of its shareholders to news of the offer when trading resumes in the UK today.

Though Mr Arun Sarin, Vodafone chief executive, is thought to have secured board approval for the approach last week, he must gain support from his shareholder base, many of whom are concerned about the high price.

Some analysts have estimated that buying AT&T Wireless could dilute the company's earnings by as much as 20 per cent, an amount that would be unacceptable to many shareholders.

The company has told some large investors it would put the bid to a shareholder vote at an extraordinary meeting. It would need 50 per cent support to go ahead. Vodafone would also need to sell its 44.3 per cent stake in Verizon Wireless, North America's largest mobile network, to avoid regulatory hurdles and help fund the deal. Under the terms of its put options, the UK group has the right to sell its stake for a fixed sum of $20 billion in two tranches, one falling due this summer. There are three "sale windows" between 2005 and 2007.