Vodafone buys out AirTouch

The new Vodafone AirTouch Plc will have a combined market value of about $110 billion, making it the third largest publicly-traded company in Britain with more than 23 million customers around the world.

Under the terms of the deal, Vodafone is offering to pay AirTouch shareholders about $97 per share, consisting of five Vodafone ordinary shares (equivalent to 0.5 Vodafone American Depositary Receipts), plus $9 in cash.

That would put the cash and stock value of the deal at roughly $56 billion. Including assumed debt, it would be worth some $60 billion, accordingto preliminary estimates.

Vodafone and AirTouch have long been seen as ideal merger partners. For Vodafone, AirTouch will give it a market-leading position communications (PCS) services, in other countries where it does not yet operate, including India, Italy, Japan, and Spain.

Vodafone, which ranks as Britain’s biggest mobile phone company with operations in a dozen other markets, is seen as being particularly strong in northern Europe, while AirTouch is strong in the southern part of the continent.

Vodafone’s shares, which have more than doubled in the past three months, have hit record highs in recent days and look set to extend their gains further, according to analysts.

Vodafone’s shares closed up nearly two per cent, or 18.5 pence, at 10.69 pounds in London on Friday, while AirTouch jumped $4.56 to close at $83.38 in New York. Bell Atlantic closed down 44 cents at $53.38. Earlier this week, two leading securities houses, raised their price target for Vodafone shares, assuming the company wonAirTouch. Dresdner Kleinwort were setting a target of 15.00 pounds for Vodafone stock.

The new Vodafone AirTouch company will be led by Vodafone Chief Executive Chris Gent, who will be group CEO, and AirTouch head Sam Ginn, who will serve as non-executive chairman. In announcing that it had ended merger talks, Bell Atlantic said it would continue its existing partnerships with AirTouch, including its PrimeCo PCS alliance in the US.

The companies did not comment on why New York-based Bell Atlantic had dropped out of the picture. Vodafone and Bell had been in a bidding war since early January for Airtouch. However, some US analysts said the prospect of a bidding war might have hit Bell’s share price, hurting its planned merger with GTE Corp.

Meanwhile, Vodafone expects the merger to close in the second half of this year. "Vodafone AirTouch will have the size and financial resources to take advantage of future opportunities, making the company a leading force not only within wireless but throughout thetelecommunications industry," AirTouch’s Ginn said.

The company’s headquarters will be in Newbury, England, with US and Asia-Pacific operations based in San Francisco. The deal is expected to be predominantly tax free to AirTouch stockholders.

The Vodafone/AirTouch merger is the latest in a wave of telecom tie-ups, following SBC Communications Inc’s $61 billion deal with Ameritech and Bell Atlantic’s $52.8 billion proposal to buy GTE, which is pending US regulatory approval.

According to analysts, Vodafone AirTouch could eventually create a worldwide cellular network that could compete with a service launched recently by a group of high-tech companies including Motorola Inc. "Vodafone becomes the largest cellular company in the universe," Atlanta-based telecoms analyst Jeffrey Kagan said.

"It could pave the way for a global seamless cellular system down the road," he added.