For AT&T, Waiting Is the Easiest Part
AT&T isn't about to buy Vodafone. But the company hasn't hung up on its European ambitions. The carrier said Monday it doesn't intend to make an offer for U.K.-based Vodafone. The announcement came in response to a request from U.K. regulators who asked AT&T to clarify its intentions toward Vodafone. This doesn't necessarily mean a bid is completely off the table. Even so, the U.S. carrier may have good reason to wait, if it bids at all. On one level, the reason for AT&T's response was simple. Under U.K. takeover rules, a company must respond with an announcement if regulators ask it to do so. Had AT&T said it was considering a bid, it would have had 28 days to make a formal offer. But AT&T was never anticipated to make a move until after the closure of Verizon Communications' deal to buy the rest of Verizon Wireless from Vodafone. That deal isn't expected to close until Feb. 21, provided Verizon shareholders approve it Tuesday. In other words, AT&T seemingly had no choice but to say it wasn't interested. According to U.K. takeover laws, AT&T can't bid for Vodafone for six months, except under certain conditions. These include a bid backed by Vodafone's board, which could be feasible within the six-month time frame. Getting a bid done earlier would help AT&T avoid the risk of interest rates climbing before it raises debt to finance a deal. And delaying has its advantages. Waiting six months takes AT&T beyond the European parliamentary elections in May, which is also the deadline for a package of telecom-reform measures the European Commission is considering, according to Citigroup. Holding off also likely gets AT&T past a decision by regulators over whether to allow consolidation in the German wireless market, a crucial test case for the European telecom market. If these break in AT&T's favor, it might help boost the rationale for a deal that would come with few apparent synergies. AT&T has been looking toward Europe, where networks tend to lag the U.S., as a source of growth. Vodafone is about to launch a major network upgrade project, reflecting the strategy AT&T would likely employ. But it is playing catch up with European peers, who are further ahead in building next-generation networks, says Sanford C. Bernstein. Moreover, Vodafone trades at a steep 21 times forward earnings estimates, compared with about 13 times for AT&T. At that price, investors should be grateful AT&T isn't rushing in to bid.