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Vodafone rumoured stalking Airtouch

But despite the advantages, full merger could be tricky

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Shares in UK-based cellular company Vodafone rose sharply yesterday following weekend rumours of a tie-up with US company Airtouch. According to The Observer newspaper Vodafone is considering leveraging its $23 billion stock value into a $40 billion merger with the company that claims to be the world's largest cellular provider. The paper quotes unnamed sources as saying the companies were involved in talks last year, and suggesting two possible routes for Vodafone: first, a full-blown merger, or second a carve-up of Airtouch's assets with Worldcom. In the latter case the deal would be decidedly hostile. Following its takeover of US West's cellular business earlier this year Airtouch became the second largest cellular company in the US, and its network would therefore have potential attractions for Worldcom. But Airtouch has considerable international interests and ambitions, and has a stated policy of expanding its stakes in existing partnerships. Its international business is now a net contributor to its revenues, and any deal involving splitting the business, with international going to Vodafone, would be a substantial volte face for Airtouch. Airtouch and Vodafone do however have a great deal in common, and there clear synergies could be derived from a full-blown merger. Both companies have a string of partnership deals throughout the world, and in some cases are shareholders in the same group (for example Europolitan Sweden, where Airtouch has 51 per cent and Vodafone 19 per cent, and both are involved in Globalstar). Vodafone in particular favours the policy of buying into and growing its stakes in existing markets rather than breaking ground in new (and often dubiously profitable) ones. The combined companies' presence in Europe in particular would be strong, and the temptation to build what could be seen as the first truly global cellular provider must be great. Price, and the differences between the US and European markets, could however be stickers. Airtouch probably wouldn't want Vodafone in the driving seat of a merger (and hence, probably, the possibility of Worldcom waiting in the wings), while although Vodafone has pushed international expansion hard, it has so far shown little inclination to get involved in the US, where business models are radically different, and from a European perspective, unattractive.

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