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Cingular paid $1.5bn more than it needed for AT&T Wireless, The Sunday Times claims.

Vodafone CEO Arun Sarin says he receive a phone call from John Ziegler, his AT&TW counterpart, at 2am on Tuesday - five hours after the final deadline for offers.

"We were advised of some numbers that were weaker, and we frankly needed time to consider them," he told The Sunday Times. "It was very unusual. We were quite surprised. We knew that the business was weak, but we didn't know how weak."

Sarin spent the next two hours examining the deal for financial logic, but says that there was no prospect of increasing the offer.

Now it gets really interesting: according to the heavily-briefed ST, Cingular had already submitted a higher offer than Vodafone. But it got twitchy following several hours of silence from its bid target.

"In the minds of Cingular's advisers there could be only one explanation for the prolonged silence: Sarin needed the approval of his board to make an increased offer," the paper reports.

Cingular believed that Vodafone had submitted a bid for $14.50 a share - around $39bn. It got the go ahead from its two shareholders, SBC and Bell South, at 1.30am New York time to increase its all-cash offer to $15 a share, or $41 bn.

Cingular is sticking to its guns that it snatched AT&TW from under the noses of sleepy Vodafone execs. Literally: the spin from the Cingular camp on Tuesday, the day it won, was that Vodafone executives were asleep in their New York hotel, while the boards of its shareholders, SBC and Bell South were sitting in all-night sessions.

The American Dream

Vodafone's PR offensive in the weekend papers may contain for-the-record point-scoring, but the main thrust is to mollify big shareholders. The company has to assure the institutions that it won't go mad again in America. No, it won't put in a bid for T-Mobile America, the smallest and weakest mobile network operator, and no it won't go for Nextel either. Right now and perhaps for a very long time, indeed, Verizon Wireless is out of the question, too. Because that would mean making a full-blown hostile bid for parent company Verizon Communications.

Often it is more important not to lose than to actually win. Judging from the reaction of the stock market which marked up Vodafone's shares sharply last week, 'defeat' was seen as a victory for shareholders.

According to many analysts who ran the slide rule through AT&TW, Vodafone's existing shareholders could have lost out big time if it had won. AT&TW runs Verizon Wireless and Cingular a very poor third in market share and requires huge investment. A realistic enterprise valuation for the business may be as little as $11bn-$12bn.<

Vodafone is of course a mostly passive investor in Verizon Wireless in which it holds a 45 per cent stake. It has a put option to sell up to $10bn shares to Verizon Communications by the end of the summer. Some institutions are, the Sundays tell us, pressing for Vodafone to sell its entire stake in Verizon Wireless, freeing up perhaps $30bn to return to investors. Vodafone says it is not wedded to the concept of America. Does anyone believe this?

Vive le Difference

Vodafone likes consolidation. Last year it mopped up minorities in several country subs. But it will have to play the long game in America. It will probably be a different story in France.

Institutions are concerned that Vodafone doesn't go mad and launch a hostile bid for Vivendi, controlling owner in SFR, the French operation in which Vodafone is also a major shareholder.

It wants to own SFR and could succeed with a friendly offer. Vivendi is understood to want $18bn for its stake in SFR - at least $4bn more than Vodafone is currently prepared to pay.

Vivendi would lose a big cash cow, but will emerge debt-free and shorn of a potential predator. It is only a matter of time before Vodafone carries the day with SFR. ®

Related stories

Verizon, Vodafone stake out in the US
AT&T Wireless awaits prom call from Vodafone
Vodafone's AT&T interest confirmed<
Vodafone loses AT&T Wireless battle

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