Vodafone eyes T-Mobile UK bid

By Andrew Parker and Neil Hume in London and Gerrit Wiesmann in Frankfurt, Financial Times

Vodafone is considering an offer to buy T-Mobile UK in an audacious move that would have huge repercussions for the British mobile phone market, said the FT today.

The world’s largest mobile operator by revenue is looking at the case for acquiring T-Mobile UK, which has an estimated enterprise value of Euro 3 billion Euro 4 billion ($4.2 billion to $5.6 billion) – even though any transaction runs the risk of being blocked by regulators.

Deutsche Telekom, T-Mobile UK’s owner, has appointed JPMorgan to advise on the strategic options for the business after several years of under-performance.

Vodafone declined to comment. But people familiar with the situation said the company was examining the case for making an offer for T-Mobile UK, or setting up a joint venture. In February, Vodafone and Hutchison Whampoa, the Hong Kong conglomerate, announced plans to combine their Australian mobile businesses.

Shares in Vodafone rose 1.3% on Monday to 117.9p, while Deutsche Telekom was 0.8% higher at Euro 8.30.

If Vodafone were to buy T-Mobile UK, the company would be catapulted to clear market leadership, with a 40% share of revenue paid by British mobile phone users. Currently, O2 , the largest UK mobile operator owned by Spain’s Telefónica, has a market share of about 27%. Vodafone has 25%, France Telecom’s Orange 22% , T-Mobile 15%, and 3, the operator owned by Hutchison Whampoa, 8%.

The UK is the only major European market with five mobile operators, and they all complain about fierce competition that eats away at profit margins. If the number of operators were reduced through deal-making, pricing pressure should be eased and margins boosted.

Some analysts say regulators might let one operator secure a 40% market share, given such circumstances exist in France, Italy and Spain.

Vittorio Colao, Vodafone’s chief executive since July last year, used his strategy presentation last November to say the company was for the first time willing to play an active role in consolidation between operators.

The first example of his strategy in action was Australia, where regulators last month approved the plans by Vodafone and Hutchison Whampoa to combine their mobile businesses.

Terence Sinclair, analyst at Citi, Vodafone’s broker, said in a research note this month following a meeting with Colao that the chances of consolidation between operators in the UK market were higher than a year ago.

“Vodafone’s message remains that it is ready to participate in consolidation, as per Australia,” said Sinclair.

Deutsche Telekom declined to comment.

Copyright The Financial Times Limited 2009