NEW YORK -- AirTouch Communications Inc. is being acquired by Britain's Vodafone Group PLC in a $56 billion cash-and-stock deal, creating the world's largest cellular phone company and giving Vodafone access to the U.S. market.
The announcement late Friday ended a two-week bidding war and came just hours after Bell Atlantic said it had broken off talks with AirTouch, the nation's second-largest independent cellular phone company. Bell Atlantic, a formidable East Coast phone company, hoped to build a nationwide cellular network with the San Francisco-based AirTouch.By buying AirTouch, London-based Vodafone gets access to the $30 billion U.S. cellular phone market, and AirTouch's fast-growing international assets, which stretch from Sweden to Egypt. The two companies are partners in two European ventures and only compete in Germany.
"AirTouch wins no matter who buys them, so they're happy," said Jeffrey Kagan, an independent telecom analyst in Altanta.
Indeed, Vodafone raised its offer from a reported $90 a share, or $52 billion, to $97 a share. The sweetened bid represents a 16 percent premium over AirTouch's closing stock price Friday.
Vodafone will pay $88 a share in its stock, and $9 in cash, the companies announced. Under those terms, AirTouch shareholders get 0.5 of a Vodafone U.S. share, the equivalent of five British shares of Vodafone, in exchange for each AirTouch share.
The deal would be the fifth-largest ever involving a U.S. company, trailing by far the No. 1 merger, the pending SBC Communications Inc. acquisition of buy Ameritech Corp. for $81.21 billion in stock.
Sam Ginn, chief executive of AirTouch, will become the new chairman of the combined company, which will be called Vodafone AirTouch PLC. Chris Gent, Vodafone's chief executive, will retain his title.
The announcement left open the possibility of further acquisitions, including deals outside the cellular phone business.
"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 the telecommunications industry," Ginn said in the joint statement.
The companies said they hoped to complete the deal in late 1999, pending approval by regulators in the United States and Europe.
Kagan said he had hoped that Bell Atlantic, which offered $45 billion for AirTouch, would have won so that the two companies could have made a stronger challenge to AT&T Corp.'s national, flat-rate cellular phone plan. Bell Atlantic's pursuit of AirTouch had raised hopes for competition that would lower cellular phone charges in the United States.
"Vodafone will now have a foothold in the United States, but I don't see that affecting the U.S. wireless marketplace," Kagan said.
New York-based Bell Atlantic had too much at risk to stay in the hunt-- a $62.55 billion acquisition of GTE Corp., which is still awaiting regulatory approval, analysts said.
"If the bidding war made Bell Atlantic's stock price volitile, or fall, then that could have screwed up their deal with GTE, and they couldn't risk that," Kagan said.
Before Bell Atlantic pulled out of the talks and the deal was sealed with Vodafone, AirTouch's shares rose $4.56 1/4 Friday to close at $83.37 1/2 a share on the New York Stock Exchange, where Vodafone's U.S. shares rose $1.43 3/4 to $176 and Bell Atlantic fell 68 3/4 cents to $53.12 1/2.
Bell Atlantic, which provides cellular and local phone service from Maine to South Carolina, still needs to expand its cellular network to go head-to-head with AT&T, Nextel Communications and Sprint PCS.
"Once they get the GTE deal complete, they'll still have tremendous leverage against the three national wireless players," said Holt Thrasher, managing director of Broadview International, an investment banking firm in Fort Lee, N.J.
Bell Atlantic wasn't the only suitor to walk away empty handed. MCI WorldCom Inc. also considered a bid for AirTouch, but backed out last week.
The high-stakes bidding for AirTouch underscored the rapid transformation in the telephone industry and the big profits to be made in cellular phones. As the technology improves, cellular phones are quickly becoming an easy substitute for traditional telephones.
The number of worldwide cellular phone subscribers is expected to soar from 285 million in 1998 to 615 million within four years, according to Strategis Group, a telecom consulting company in Washington.
Much of that growth will come in countries like Russia, India and China, where it would be costly to connect remote villages.