Cingular Wireless Wins AT&T Wireless Bidding War

Byline: Fred Barbash and Yuki Noguchi

Cingular Wireless won the bidding war for struggling AT&T Wireless early this morning with a $41 billion cash offer, laying the groundwork for the largest cellular phone company in the nation with 46 million customers and potentially reshaping the entire wireless market.

The announcement from Cingular and AT&T Wireless that they had agreed on a $15 per share deal came shortly after Vodafone Group, the British competitor for AT&T's favor, dropped out of the bidding.

Vodafone had bid as high as $14 a share. But it would have had to sell its 45 percent share in Verizon Wireless, which claims 37 million subscribers, plus come up with the cash for the purchase.

After Cingular upped its bid, Vodafone's officers concluded that the company's shareholders had more to lose than to gain, said Ben Padovan, a Vodafone spokesman.

"We had to measure it against a very successful partnership with Verizon Wireless," he said. Vodafone always said it would stay in the bidding only insofar as it would create more value for shareholders, Padovan said.

Cingular and AT&T Wireless said in a joint statement that they hope to complete the merger as soon as late 2004. With such a far-ranging combine, anti-trust regulators will have to determine whether the combined company has overlapping markets where their ownership is too concentrated. If there is excessive overlap, the firms could be forced to jettison some holdings.

Under the terms of the agreement approved by the boards of directors of Cingular and AT&T Wireless, shareholders of AT&T Wireless will receive $15 cash per common share or approximately $41 billion, according to the Cingular announcement. The AT&T Wireless share price closed at $11.82 Friday. It traded at about $6 a year ago.

AT&T Wireless trades under the symbol AWE on the New York Stock Exchange, independently of the widely held company AT&T.

The wireless sector is one of the few parts of the telecommunications industry that has grown during three years of a broad downturn. But intense price competition among the six major carriers, while reducing some fees for consumers, has kept profit margins thin, with only a few companies able to post a profit. Analysts say the competitive landscape has made the industry ripe for consolidation.

"This is great news for America's wireless users," said Stan Sigman, president and chief executive officer of Cingular Wireless. "By combining the strengths of these two companies we expect to accelerate the availability of advanced wireless services for consumers. 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 consumers."

"Today's announcement is a triple win for AT&T Wireless shareowners, customers and employees," said John D. Zeglis, AT&T Wireless chairman and chief executive officer. "For shareholders, the transaction provides a handsome return on investment. For customers, this means all the advantages only the nation's largest wireless company can provide. For employees who become part of the combined company, this means more opportunities than they otherwise would have had with AT&T Wireless as a standalone company."

The new wireless powerhouse now hopes to accelerate its offering of advanced high-speed services, including wireless Internet and e-mail applications and other offerings often called "third generation" or "3G" wireless in the industry.

Cingular is a joint venture of SBC Communications and BellSouth, with SBC owning 60 percent of the company and BellSouth the balance.

AT&T Wireless was spun off by its corporate parent AT&T in 2001 as part of the long-distance giant's effort to restructure its business and to reduce its debt. Although AT&T and AT&T Wireless have a joint marketing agreement, the two companies have no other financial ties. The single largest shareholder in AT&T Wireless is Japan's NTT DoCoMo, which owns 16 percent of the mobile company.

Analysts have said that AT&T Wireless's buyer inherits a company with a host of operational and technical problems. Every month, 3.3 percent of its customers are abandoning its service, according to its most recent financial reports.

Software problems in the fall caused an outage that prevented the company from signing up new customers, exacerbating its high level of customer complaints filed with the Federal Communications Commission. The company has $10.5 billion in long-term debt.

Last month, on the heels of its poor quarterly results, AT&T Wireless put itself up for sale. The competition to buy the third-largest cellular phone company has escalated steadily since Friday.

About 2:30 a.m. yesterday, Cingular had upped its bid from about $35 billion, sources said, and Vodafone, the largest cellular provider in the world, matched it. But then Vodafone announced that it was withdrawing from the bidding.

A deal with Vodafone would have given the British cellular giant its own foothold in North America, which it now lacks. Vodafone, which owns 45 percent of Verizon Wireless, would have had to sell its share before taking control of AT&T Wireless.

Some analysts favored Vodafone in the bidding war, claiming that it had deeper pockets and a more strategic vision of building a global wireless network.

Vodafone has acquired all or some share in seven wireless companies around the world since 1999, and it now has 130.4 million subscribers in 35 countries. Cingular is the second-largest wireless company in the United States, with 24 million customers.

"All these carriers are looking at bundling and globalizing" their services, said Bob Egan, president of Mobile Competency Inc., a consulting firm. "Vodafone would want to reorganize [AT&T Wireless] as they have with other acquisitions," then integrate them with their other holdings, he said.

Japanese wireless giant NTT DoCoMo Inc. and Reston-based Nextel Communications Inc. were reportedly interested in the deal, but sources say they did not submit bids.

Any deal must receive regulatory approvals.

The antitrust issues would have been less complicated with a Vodafone victory, said Blair Levin, a regulatory analyst with Legg Mason Wood Walker, because it brought less change in the competitive environment.

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