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 AT&T's statement means it cannot make an offer for Vodafone for at
least six months, unless the British company invites it to do so or
a third party enters the fray.
Banking sources said that while an uproar over the U.S. National
Security Agency's electronic surveillance program and a year-long
rally in European telecom shares may have disrupted prospects for a
deal any time soon, many think it could still happen.
AT&T, the second-largest U.S. mobile operator, had sparked
speculation it could be interested in a potentially 70 billion
pound-plus ($115 billion) deal for Vodafone after its CEO said in
October there was a "huge opportunity" in Europe to invest in mobile
broadband.
AT&T Chief Executive Officer Randall Stephenson met European Union
telecoms chief Neelie Kroes at the World Economic Forum in Davos,
Switzerland, last week, according to a person familiar with the
matter, who said they discussed high-speed wireless and
cross-European opportunities as well as the NSA spying scandal, but
did not talk about any specific deals. AT&T declined to discuss
Stephenson's Davos meetings.
Vodafone's shares fell as much as 7 percent before ending down 3.9
percent at 224.78 pence as some investors had hoped that a deal
process could start as early as February. AT&T's stock was up 0.9
percent at $33.73.
Analysts also said a deal could still make sense for AT&T, which is
facing a more competitive home market even as Europe could soon
benefit from economic recovery and investment in high-speed mobile
services that trail behind the United States'.
"I don't think this signals the end of AT&T's interest in Europe,"
said Atlantic Equities analyst Chris Watts.
One banker hoping to advise AT&T on any future Vodafone bid told
Reuters that the British group, which is in the process of selling
out of its U.S. joint venture, remained the perfect partner for AT&T
because of its presence across Europe.
AT&T was simply not ready to make an offer, the banker said, adding
that matters had been complicated by former NSA contractor Edward
Snowden's leaking of the NSA's massive phone and Internet
surveillance program, which has sparked particular outrage in
Europe.
Before any bid, AT&T would have to win over its shareholders, some
of whom have questioned the wisdom of entering fiercely competitive
and highly regulated markets such as Britain, Germany and Spain.
Another complication for AT&T is that it is unlikely to want to run
Vodafone's businesses in emerging markets such as India, South
Africa and Turkey, which were hit last week by a selloff in their
currencies.
Analysts said AT&T's reticence could provide a reality check for the
wider European telecoms sector, which has surged about 24 percent in
value over the past year compared with an 11 percent rise in
Europe's top share index. The sector has been lifted by a string of
takeover deals, despite few signs of an improvement in underlying
trading.
Another sector banker said a recent surge in Vodafone's share price
due to the U.S. sale and speculation of a takeover bid might also
have deterred AT&T. Vodafone shares are up 38 percent over the past
year.
ADVANTAGES OF A DELAY
If it does not buy Vodafone, AT&T could instead look at other
European operators, such as British market leader EE, according to
bankers and analysts.
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But Vodafone is seen as a better option than EE, which would give
AT&T much more limited exposure to Europe. Investors showed little
sign of betting on such a deal on Monday as they pushed down shares
of EE's parents — Orange and Deutsche Telekom.
"A number of other potential targets might be accretive in their own
right (for AT&T) but wouldn't have the sort of game-changing
potential Vodafone would have, if you think that Europe is the right
place to be," Watts said.
Citi analysts said a six-month delay in bidding for Vodafone could
have advantages for AT&T as the British company is due to complete
the $130 billion sale of its stake in U.S. venture Verizon Wireless
around the end of February. This would give investors time to value
Vodafone's remaining business.
Analysts think that value is likely to settle around 60 billion
pounds, with a bid premium of around 20 percent taking the price tag
of any takeover deal to over 70 billion pounds.
Regulators would have also given their decision by then on
Telefonica's takeover of KPN's German mobile business, which is seen
as a key test of whether competition authorities are more open to
consolidation in Europe.
In addition, AT&T's Stephenson, who has promoted the need for
regulatory changes in Europe, may have a better idea of movement on
that front later this year.
A package of reforms intended to spur investment in networks and
encourage cross-border services is under debate in the European
Parliament. On top of this, the current crop of regulators,
including Kroes, could be replaced at the end of October.
M&A EVERYWHERE
A series of telecoms and cable industry deals has helped fuel
speculation that competition regulators could loosen the leash on
mobile companies wanting to merge in Europe to help them cope with
fierce competition that has driven down prices.
Vodafone itself has recently agreed to buy Germany's Kabel
Deutschland, and a person familiar with the situation said it was
also in talks to buy Spain's main cable operator Ono.
U.S. cable company Liberty Global on Monday clinched a takeover of
Ziggo in a deal valuing the Dutch media and communications services
provider and its debt at 10 billion euros ($14 billion).
Espirito Santo analyst Robert Grindle, who downgraded his rating on
Vodafone shares last week, said AT&T may return once it sees signs
of trading in Europe starting to stabilize. "We downgraded because
one of the issues was that we didn't think a deal would happen as
quickly as people thought," he said.
($1 = 0.6060 British pounds)
(Additional reporting by Paul Sandle,
Leila Abboud, Anjuli Davies, Foo Yun Chee and Sinead Carew; editing
by Mark Potter and Jan Paschal)
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