Vodafone deal to wipe out three years' profits

VODAFONE IS set to plunge into the red for the next three years as a result of its pounds 37bn merger with its US rival, AirTouch, to form the world's largest mobile phone group.

The British group yesterday warned that the mega-deal, clinched at the weekend, would result in a pounds 30bn accounting charge that would wipe out the enlarged group's profits until 2002.

Chris Gent, Vodafone chief executive, said the deal - which creates the UK's third-largest publicly quoted company, with a pounds 68bn market value - would not qualify as a merger under international accounting rules because of a large cash payment to AirTouch shareholders. This meant that the UK group would have to pay pounds 2bn a year for the next 15 years for goodwill - the price it pays over AirTouch's book value.

Vodafone, which defeated the US giant Bell Atlantic, is to pay about $5.3bn in cash and $52bn in shares, and take on $2.89bn of debt, to win control of San Francisco-based AirTouch. Mr Gent, who will be chief executive of the new Vodafone AirTouch, dismissed fears that the three-years of losses would lead shareholders to reject the deal. "None of the Vodafone investors have held our stock for the dividend. They see us as a growth stock." He said investors would focus on the larger group's ability to use size and global reach to boost revenues and cut costs.

Under the terms of the agreement, AirTouch will have to pay Vodafone up to $1bn if the merger collapses, while the UK group will have to pay $225m if its shareholders do not approve the deal.

The combined group - to be owned by Vodafone and AirTouch shareholders in equal parts - would achieve yearly cost savings of pounds 200m by mid 2002, the company said. Most of the savings would come from enhanced buying power with handset makers and greater efficiencies in the development of new technologies. Job cuts among the 24,000 joint workforce would be "minimal", with no redundancies expected in the UK.

The company, to be chaired by AirTouch chairman Sam Ginn, will operate in 23 countries and have over 23 million mobile phone customers and combined revenues of pounds 6bn. Its strength will be in Europe, where it will cover 11 countries.

Mr Gent said that he wanted to acquire businesses in the important US market to create a nationwide mobile phone network. He said the group planned to retain AirTouch's US joint venture with Bell Atlantic, but needed "one or two assets" to rival coast-to-coast providers such as AT&T and Sprint.

Mr Gent was confident that Bell Atlantic's recent threat to sue AirTouch over its link with Vodafone would be resolved "amicably in the near future".

The companies' main overlap is in Germany, where they are members of rival consortia. However, Vodafone has said it would sell its stake in Germany's third-largest mobile carrier to join AirTouch in Mannesmann Mobilfunk, the country's largest mobile group.

ebooksAn unforgettable anthology of contemporary reportage
CSKA Moscow celebrate after equalising with a late penalty

Arts and Entertainment
Life and Style
Designer Oscar de la Renta takes a bow after showing his Spring 2015 collection in September, his last show before his death
fashionThe passing of the legendary designer has left a vacancy: couturier to America’s royalty, says fashion editor Alexander Fury
Life and Style

Company reveals $542m investment in start-up building 'a rocket ship for the mind'

Bourgogne wine maker Laboure-Roi vice president Thibault Garin (L) offers the company's 2013 Beaujolais Nouveau wine to the guest in the wine spa at the Hakone Yunessun spa resort facilities in Hakone town, Kanagawa prefecture, some 100-kilometre west of Tokyo
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Helpdesk Analyst

£23000 per annum + pension and 22 days holiday: Ashdown Group: An established ...

Senior Helpdesk Analyst / Service Desk Co-ordinator

£27000 per annum + pension, 22 days holiday: Ashdown Group: An established ind...

Senior Pensions Administrator

£23000 - £26000 Per Annum: Clearwater People Solutions Ltd: Our client is curr...

Corporate Actions Administrator / Operations Administrator

£25 - 30k: Guru Careers: A Corporate Actions Administrator / Operations Admini...

Day In a Page

Indiana serial killer? Man arrested for murdering teenage prostitute confesses to six other murders - and police fear there could be many more

A new American serial killer?

Police fear man arrested for murder of teen prostitute could be responsible for killing spree dating back 20 years
Online petitions: Sign here to change the world

Want to change the world? Just sign here

The proliferation of online petitions allows us to register our protests at the touch of a button. But do they change anything?
How to Get Away with Murder: Shonda Rhimes reinvents the legal drama

How to Get Away with Murder

Shonda Rhimes reinvents the legal drama
A cup of tea is every worker's right

Hard to swallow

Three hospitals in Leicester have banned their staff from drinking tea and coffee in public areas. Christopher Hirst explains why he thinks that a cuppa is every worker's right
Which animals are nearly extinct?

Which animals are nearly extinct?

Conservationists in Kenya are in mourning after the death of a white northern rhino, which has left the species with a single male. These are the other species on the brink
12 best children's shoes

Perfect for leaf-kicking: 12 best children's shoes

Find footwear perfect to keep kids' feet protected this autumn
Two super-sized ships have cruised into British waters, but how big can these behemoths get?

Super-sized ships: How big can they get?

Two of the largest vessels in the world cruised into UK waters last week
British doctors on brink of 'cure' for paralysis with spinal cord treatment

British doctors on brink of cure for paralysis

Sufferers can now be offered the possibility of cure thanks to a revolutionary implant of regenerative cells
Let's talk about loss

We need to talk about loss

Secrecy and silence surround stillbirth
Will there be an all-female mission to Mars?

Will there be an all-female mission to Mars?

Women may be better suited to space travel than men are
Oscar Pistorius sentencing: The athlete's wealth and notoriety have provoked a long overdue debate on South African prisons

'They poured water on, then electrified me...'

If Oscar Pistorius is sent to jail, his experience will not be that of other inmates
James Wharton: The former Guard now fighting discrimination against gay soldiers

The former Guard now fighting discrimination against gay soldiers

Life after the Army has brought new battles for the LGBT activist James Wharton
Ebola in the US: Panic over the virus threatens to infect President Obama's midterms

Panic over Ebola threatens to infect the midterms

Just one person has died, yet November's elections may be affected by what Republicans call 'Obama's Katrina', says Rupert Cornwell
Premier League coaches join the RSC to swap the tricks of their trades

Darling, you were fabulous! But offside...

Premier League coaches are joining the RSC to learn acting skills, and in turn they will teach its actors to play football. Nick Clark finds out why