AT&T on Monday ruled out a bid for Britain’s Vodafone after Britain’s takeover watchdog asked the U.S. phone company to clarify its position following reports that it had sounded out European regulators on the prospects of a merger.
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.
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.
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)