AirTouch Agrees to Merge With British Firm

AirTouch Communications Inc. capped a weeks-long bidding war Friday by agreeing to merge with Britain’s Vodafone Group in a deal worth an estimated $56 billion, creating the world’s dominant wireless phone company.

Together, San Francisco-based AirTouch and Vodafone of Newbury, England, would serve more than 23 million wireless customers in 23 countries and have a market capitalization of $110 billion. The combined company would be called Vodafone AirTouch and its networks would reach nearly 1 billion people.

Vodafone’s cash and stock offer is worth an estimated $97 a share for AirTouch shareholders, who also have been courted by New York-based Bell Atlantic Corp. The Baby Bell dropped out of the bidding earlier in the day after offering a reported $55 billion in stock.

Also Friday, Bell Atlantic and GTE Corp., which agreed to merge last year, sued AirTouch. The two companies allege that AirTouch is violating antitrust laws by blocking them from some cellular phone markets AirTouch serves.

“We would not have filed [the suit] if the merger talks had been successful,” Bell Atlantic spokesman Jim Gerace said.

“AirTouch wins no matter who buys them,” said Jeffrey Kagan, president of Kagan Telecom Associates in Atlanta. “The losers are Bell Atlantic and the U.S. wireless marketplace. Bell Atlantic needed this nationwide network to help them compete against AT&T; Wireless, and the U.S. marketplace would have benefited by fierce competition from two wireless giants.”

The transatlantic deal highlights the increasingly global nature of the wireless industry. In addition to serving California and the Western U.S., AirTouch has joint ventures and other operations in Europe, Asia and the Middle East, including such fast-growing markets as Italy and Japan. Vodafone’s primary market is Europe, but it also has operations in South Africa and Australia.

“The merger is a superb alliance of the two leading global mobile operators,” said Chris Gent, chief executive of Vodafone.

As part of the deal, Vodafone also would acquire AirTouch’s stake in Globalstar Telecommunications Ltd., a fledgling satellite communications project that hopes to serve wireless customers worldwide.

However, Vodafone’s newly purchased U.S. territory merely gives it a foothold in a market where national coverage is becoming increasingly important. In the U.S., AirTouch remains a regional operator, and its domestic network is largely incompatible with both companies’ international operations.

Consumers may not notice much immediate impact from the blockbuster deal, said Charles Carbone, telecommunications analyst at the Utility Consumers’ Action Network in San Diego.

“The benefit is to the shareholders,” Carbone said. “The benefit is not to consumers. This is part and parcel of the continuing and worsening trend toward consolidation that thus far, under three years of the Telecom Act, hasn’t benefited consumers.”

One of the biggest beneficiaries will be Sam Ginn, AirTouch’s chairman and chief executive. The value of his stock holdings jumps to more than $150 million, based on a $97-per-share purchase price. In addition, his stock options and other stock awards could amount to an additional $190 million.

If the deal is approved, Ginn would become a nonexecutive chairman of the board. Vodafone’s Gent would remain chief executive of the combined company.

In New York Stock Exchange trading Friday before the deal was announced, investors bid up AirTouch shares $4.56--nearly 6%--to close at $83.38, while American depositary receipts for Vodafone rose $1.44 to end at $176. Shares of Bell Atlantic fell 69 cents to end the day at $53.13.

Under terms of the deal, AirTouch stockholders would receive half a Vodafone ADR--equivalent to five Vodafone ordinary shares--plus $9 in cash for each share of AirTouch common stock. Based on Friday’s closing price, that would amount to $97 per AirTouch share.

The deal, which is subject to approval by both companies’ shareholders as well as regulators on both sides of the Atlantic, is expected to close in the second half of the year.