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Vodaphone, Bell Atlantic Set
To Battle It Out for AirTouch

Reuters
LONDON — Britain's Vodafone and U.S. rival Bell Atlantic look set to raise their multibillion dollar bids as they fight for AirTouch, the world's biggest wireless telecoms company, analysts said on Friday.

Reports on both sides of the Atlantic said Vodafone and Bell are poised to increase their bids from an expected $55 billion and $48 billion, respectively.

The Financial Times newspaper said Vodafone was considering raising its offer after U.S. local phone titan Bell Atlantic was quoted as saying it aims to beat its British rival's bid.

Bell could potentially up the ante thanks to a U.S. regulatory decision allowing it to use a favorable accounting method for the AirTouch deal, sources familiar with the situation told Reuters in New York.

But Vodafone, Britain's largest mobile company, is likely to respond to any challenge, given that AirTouch is seen as a one-off opportunity to create a global powerhouse in the lucrative area of mobile telephony, analysts say.

"If you want to be the wireless Coca-Cola, there aren't many other acquisitions you could make like AirTouch," said ABN AMRO analyst Alan Lyons, who has a 'hold' rating on Vodafone pending the outcome of the deal.

This perceived "scarcity value" could drive AirTouch's price well beyond the Vodafone's reported $55 billion bid, consisting of some $90 a share in stock and $4-$6 per share in cash.

"We reckon AirTouch is worth $100 a share in its own right," one analyst said. "And for Vodafone, because of the strategic benefits and synergistic benefits, it's worth a lot more than $100. So you could see them quite comfortably paying more and people still realizing its a good deal for them."

At this point, though, estimating AirTouch's price tag is complicated by the fact that neither suitor has actually confirmed how much it has bid, leading at least one punning pundit to dub the AirTouch saga as a "phoney war."

Vodafone declined to comment on the latest report, reiterating that it is still waiting to hear from AirTouch, which has also stayed silent as it weighs up the offers.

"The ball is in their court," a Vodafone spokesman said.

Vodafone's shares, which have more than doubled in the past three months, firmed 0.5 percent, or 5.5 pence to trade at 1057 by 1330 GMT. Bell's shares closed down about $1 at $53-13/16 in New York on Thursday amid an overall drop in the U.S. market.

One of the key issues for either suitor will be the accounting treatment of any deal.

The Financial Times said Vodafone is considering structuring an AirTouch deal as an acquisition rather than a merger, meaning that it would have to amortise goodwill against earnings.

As a result, the acquisition would substantially dilute Vodafone's reported earnings in the short term, a situation that investors might not like but would probably learn to live with, depending on the structure of the deal.

"It's not a deal-killer, but it's certainly a big speed bump," an analyst said.

Meanwhile, Bell Atlantic has received a regulatory ruling allowing it to use pooling-of-interest accounting for an AirTouch deal, meaning that it could potentially avoid certain charges that might dampen profits.

For Bell, AirTouch offers a position in the western U.S., allowing the Baby Bell to break out of its confined East Coast market that is dwarfed by nationwide providers such as AT&T; Corp and Sprint PCS.

For Vodafone, AirTouch represents a strong fit internationally, with Vodafone's northern European assets meshing well with AirTouch's operations in the south.

AirTouch would also give Vodafone a market position in the U.S., a market it has shied away from in the past.

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