According to the Financial Times, Verizon and AT&T are preparing a joint bid for Vodafone. They are reportedly ready to offer around 260 pence per share, the equivalent of around EUR 190 billion. Verizon would then take over Vodafone's 45 percent in Verizon Wireless, while AT&T would get the rest of Vodafone's assets.
Vodafone and Verizon have been talking for years about a possible buy-out, so this part of the deal is not a surprise. AT&T meanwhile is regularly named a potential buyer in Europe, since its last attempt at growing through acquisitions in the US (T-Mobile USA) was blocked by regulators. One of the companies that formed the current AT&T, SBC, was already active in Europe in the 1990s, building a portfolio from the privatisation of various former PTTs. These stakes (such as BellSouth's in KPN) were later sold, and now AT&T is reportedly considering a return to Europe.
A number of factors may play a role in this move:
- Scale. Economies of scale and synergies are undoubtedly a big consideration. However, it's questionable whether creating an even bigger group than these players already have would lead to anything meaningful. These kinds of mega-mergers risk creating the opposite of synergies - organisations full of superfluous overhead costs and unwieldy layers of management. It's doubtful whether the theoretical economies of scale and synergies could be actually realised. And when it comes to running Vodafone, one can wonder whether AT&T's management could do it any better than Vodafone's current leadership.
- Growth. AT&T and Verizon see their growth in the US coming under pressure from the competition and likely have hopes of better chances in Europe. America Movil (stakes in KPN and Telekom Austria) and Liberty Global (UPC) are some of the other American operators apparently searching for growth in Europe. The attractive targets in emerging markets have already been scooped up by the likes of France Telecom, Deutsche Telekom, Telenor and TeliaSonera, but Vodafone has its own substantial assets there which make a significant contribution to growth. Given the economic crisis, it's surprising still that AT&T would want to go there, but maybe it has a more long-term vision. At the same, the regulatory environment in Europe is much tougher than the US, which could make it a difficult market for American companies.
- Investment potential. Another possibility is the US operators see Vodafone as attractively valued. On the other hand, these kinds of big deals have heavy tax consequences.
- Convergence. On the business market, a takeover of Vodafone would allow AT&T to expand in mobile services, but this is only a small part of the company. On the consumer market such a change in ownership would have no impact on Vodafone's operations.
All in all, a takeover of Vodafone does not seem very probable, and in fact, quite risky. Furthermore, why would AT&T want to help its rival Verizon with such a significant deal to strengthen its market-leading position in the US, when all AT&T gets in return is the start of a risky adventure. Vodafone's shares rose almost 5 percent on the report to around 195 pence, still well below the reported takeover price of 260 pence. In other words, the stock market does not seem to be taking this rumour especially serious either.
