A bidding war has broken out for AirTouch Communications, which is weighing dueling offers reportedly in the $45-billion range from both Bell Atlantic Corp. and Europe's Vodafone Group.
The San Francisco-based wireless company that was spun off from Pacific Telesis in 1994 has quietly become the world's largest wireless services provider, with holdings in 13 countries.
While both Bell Atlantic and Vodafone could benefit from AirTouch's international operations, analysts believe Bell Atlantic is most interested in broadening its U.S. coverage with AirTouch's West Coast business. Vodafone is most interested in AirTouch's international operations to fill out its European base.
"The chess game is about to start big-time," said Bob Egan, research director at GartnerGroup in Stamford, Conn. "But bottom line, I think splitting up the company is where we're going to end up."
New York-based Bell Atlantic, the nation's largest local phone company, has offered a stock deal worth an estimated $45 billion--a price that would rank the deal among the nation's largest mergers.
On Tuesday, AirTouch confirmed it is also in talks with Vodafone, a leading British wireless company that has held merger discussions with AirTouch before. Some analysts say Vodafone could offer as much as $90 a share.
The news sent AirTouch stock up sharply. It leaped $9.25 to close at $77.50 on the New York Stock Exchange, where it was the second-most active stock. At that price, AirTouch has a market value of $44 billion.
The other players' shares also benefited. Bell Atlantic jumped $3.06 to $55, and Vodafone gained $4.50 to $179.13, also on the NYSE.
Bell Atlantic is awaiting approval of its proposed merger with GTE Corp. If it also buys AirTouch, Bell Atlantic would have to shed any overlapping wireless operations. Shares of GTE rose $2.50 to close at $67.25 on the NYSE.
Several other telecom-related stocks also surged, including wireless phone maker Nokia, up $6.31 to $134.50, and MCI WorldCom, up $5.06 to $74.94. Nokia trades on the NYSE, while MCI trades on Nasdaq.
The twin offers mark a coming of age of sorts for AirTouch, which has struggled to shed its image as a small player in a mobile market fixated on higher-profile rivals such as AT&T Wireless.
Clearly, AirTouch is no mere regional provider. The company--once a side business for Pacific Telesis--has a base of more than 35 million wireless phone subscribers worldwide--roughly one of every 10 wireless customers is served by AirTouch or one of its joint ventures.
AirTouch is a minority owner in many of the overseas operations, so the company claims a proportionate number of that overall figure--but even that amounts to a commanding 16 million subscribers worldwide.
The company has a solid franchise in the U.S., where it employs nearly 12,800 workers and sells mobile service in Los Angeles, San Diego, San Francisco and other California markets, as well as parts of 32 other states and the District of Columbia--although not always under the AirTouch Cellular name.
AirTouch also ranks as one of the nation's largest paging operators, with more than 3 million pagers in use and stakes in paging ventures in Spain, Portugal and Canada.
Who knew AirTouch had such a bright future when it went public at $23 per share in late 1993 and was spun off from Pacific Telesis the following year?
Sam Ginn, for one.
Back in 1993, Ginn was chairman and chief executive of the venerable Pacific Telesis, California's largest telephone company and holder of a lucrative monopoly in local service.
But once he orchestrated the spinoff of AirTouch--then known as PacTel Cellular--Ginn elected to leave PacTel to head the newly independent wireless business.
"He was highly criticized for doing that at the time," said Susan Passoni, a managing director at SG Cowen Securities who specializes in telecommunications. "It was a risk."
Evidently, the gamble has paid off quite nicely for Ginn and other AirTouch shareholders.
"It was a long, rough road for a while," said Chris Larsen, senior wireless analyst at Prudential Securities. "But Ginn and his team have made very smart international investments, and they've done a solid job of running their domestic operations."
Analysts say AirTouch's strength lies mostly in its overseas ventures, which give the company a strong presence in Italy, Germany, Portugal, Spain, Japan and other countries. By the end of the third quarter, those operations had posted a net gain of 735,000 customers and boosted revenue 43%, compared with year-ago figures, according to AirTouch.
"In the last year, the international operations have done extremely well," Larsen said. "Without those investments, we probably wouldn't be talking about AirTouch being worth $84 a share."
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