AT&T Eyes Potential Vodafone Aqcuisition After Verizon Wireless Deal

Vodafone, the world's second-largest mobile operator, is viewed as a potentially attractive acquisition target by the US telecommunications giant AT&T.

AT&T could be interested in Vodafone's assets, primarily those in Europe, at the conclusion of the British firm's ongoing Verizon Wireless deal, reported Bloomberg, quoting people familiar with the internal discussions.

AT&T would only be interested in the wireless business and would be dissuaded if Vodafone expands in the fixed-line and cable businesses, according to the report.

The American firm could offer about £80bn (€94bn, $124bn) for what remains of Vodafone, estimated Robin Bienenstock, an analyst at Sanford C. Bernstein. The number works out to a valuation of six times earnings before interest, tax, depreciation and amortization.

Pursued by Bloomberg, AT&T and Vodafone refused to comment on a potential deal between the two firms.

Vodafone is in talks to sell its entire stake in its US joint venture, Verizon Wireless, to American partner Verizon Communications for over $130bn (£84bn, €98bn).

Vodafone does not have control over the US joint venture so unlocking its 45% stake could mean a major cash injection for the group. This increases the company's attractiveness, Bienenstock said.

An acquisition will help AT&T cash in on the growing demand for faster Internet services across Europe, Asia and Africa. Vodafone rolled out its 4G network in London just yesterday, at a time when several countries in Europe await the roll out of faster connections. The British firm also has operations in Asia and Africa.

"Were somebody to buy Vodafone, AT&T would be the primary candidate," said James Barford, a telecommunications analyst at Enders Analysis in London. "AT&T would both be likely to summon the financial resources and has already expressed an interest in Europe.

Bienenstock noted that "with £30bn to £40bn cash in its pocket [after the Verizon Wireless deal], Vodafone would quickly look an attractive target".

"Alternatively, Vodafone could use the cash to build a bigger business itself. This would be more risky and time consuming, but it could be more fun and, depending on one's view, more value creating," she wrote in a research note.

On 29 August, Vodafone shares surged to a 12-year high in early London trading after the British firm confirmed it was negotiating with Verizon Communications.

Verizon is eager to acquire full control over Verizon Wireless as the latter's subscriber-base has been growing for three quarters in a row.

The firm added 941,000 new customers at the end of the second quarter, improving on the 720,000 additions it announced for the first three months of 2013. It garnered a record 2.1 million subscribers in the fourth quarter of 2012 and generates a significant earnings margin of more than 41%.