Vodafone loses out in bid battle for AT&T Wireless - to the City's relief

Vodafone lost the fiercely contested auction for AT&T Wireless yesterday when America's third-largest mobile phone company succumbed to a $41bn bid from its arch rival Cingular, creating a new force in the highly valued US mobile phone market.

Attention immediately switched to the future of Vodafone's 45 per cent stake in its existing US mobile joint venture with Verizon Communications, with speculation suggesting Verizon may offer to acquire Vodafone's stake, which is worth up to $30bn.

In a dramatic end to the AT&T Wireless auction process, played out in the early hours of yesterday morning, Cingular, a joint venture between SBC Communications and Bell South, offered $15-a-share as a final bid.

It is unclear whether Vodafone was given the opportunity to trump the bid, which AT&T Wireless received at 1.45am yesterday morning, New York time. Vodafone said it would not be drawn into the details of the bidding process as it had signed a confidentiality agreement, refusing to comment on speculation that it had made an offer of $14.50.

However, in a short stock exchange statement, Vodafone said it had decided to withdraw from the auction process because "it was no longer in its shareholders' best interests" to continue.

Cingular's successful bid will create a new company with annual revenues of $32bn and 46 million customers.

Stan Sigman, the chief executive of Cingular, said: "This combination is expected to create customer benefits and growth prospects neither company could have achieved on its own and will mean better coverage, improved reliability, enhanced call quality and a wide array of new and innovative services for customers."

But the outcome is a personal blow to Arun Sarin, the chief executive of Vodafone, who had pressed ahead with trying to land AT&T Wireless in the face of widespread opposition from his shareholders and analysts. Vodafone's shares jumped 4.5 per cent on the outcome, reflecting the City's relief that Vodafone had been thwarted.

However, Mr Sarin's attention is likely to switch to other matters in the US, including securing the future of Vodafone's $1bn-a-year dividend payment from its Verizon joint venture. Under an existing agreement, the dividend is only payable until March next year and decisions on dividend payments are down to the Verizon Communications management. Talks are understood to be in hand on the matter.

Vodafone was insisting yesterday that its minority stake in the Verizon joint venture, until yesterday America's number one mobile operator, was still an attractive investment.

However, missing out on the opportunity to own 100 per cent of a US operator, in a market with only about 50 per cent penetration for mobile phone ownership, is a setback for Vodafone.

Verizon Communications may now make a pre-emptive bid to buy out Vodafone's minority stake in the joint venture, thought to be worth about $30bn, although Vodafone also holds an option to sell its stake in two tranches between now and 2007. It could also sell the stake through a stock market flotation. However, in the short term, Vodafone intends to press on with the Verizon arrangement.

Gaining control of AT&T Wireless would have given Vodafone a US operation that shared the same network technology as its European operations. With the merger of AT&T Wireless and Cingular, the only other US operator with common technology is T-Mobile, owned by Vodafone's arch rival Deutsche Telecom.

Vodafone will also continue with its interest in acquiring the 55 per cent it does not already own in SFR Cegetel, the French mobile operator. SFR is a joint venture with Vivendi Universal, the troubled French media conglomerate.

Speculation that Vodafone would now launch a bid for the whole of Vivendi to secure ownership of SFR, however, was met with incredulity by people close to Vodafone yesterday.