Vodafone sells shares to firm its J-Phone grip

Christopher Gent (R), Vodafone's CEO, answers a question at a Tokyo news conference while Japan Telecom's chairman Koichi Sakata listens

In this story: Financial flexibility Future deals Japan drive Controlling stake? RELATED STORIES, SITES

By Staff and wire reports

LONDON -- Vodafone has launched a record $4.3 billion share sale after agreeing to buy heavily indebted British Telecom's investments in Japan and Spain.

The placing will finance Vodafone's $6.9 billion acquisition of BT's stakes in both Japan Telecom and its mobile affiliate J-Phone, as well as Spain's Airtel.

The share placing would also finance Vodafone's desire to amass a controlling stake in Japan Telecom, Vodafone chief executive Christopher Gent said in an interview with the Nihon Keizai Shimbun.

Financial flexibility

Vodafone is buying stakes of 20 percent in fixed-line operator Japan Telecom and its mobile division J-Phone, increasing its holdings to 45 percent and 46 percent respectively. Its stake in Airtel will swell to almost 92 percent after buying BT's 17.8 percent.

Analysts had expected Vodafone to finance the purchases with debt, because its balance sheet is much stronger than most other telecom companies.

By paying for previous acquisitions with shares rather than cash, Vodafone has avoided the problems that forced BT into a humiliating retreat from Japan. That has allowed Vodafone to finance more recent purchases with debt.

Vodafone said it was financing the BT deal through a share sale -- which analysts said was equivalent to a two percent stake in the company -- to maintain its financial flexibility.

That is partly because of concerns over its credit rating. Ratings agencies will take Japan Telecom's net debt of $6.2 billion into account when determining Vodafone's rating.

Vodafone's commitment to maintaining an "A" grade could have been undermined had it taken on debt to pay for the deal.

Future deals

Some analysts said Vodafone might want to maintain its strong financial position to fund future deals.

ABN Amro said it believed Vodafone's wish list included gaining control of Verizon Wireless in the United States, raising its stake in China Mobile to 15 percent and acquiring BT's stake in Cegetel in France.

"It is very important to keep a war chest at a certain level to allow a company to be aggressive," said Alex Werkheim, a fund manager for Vodafone shareholder Eureffect in the Netherlands.

The share placing surprised the stock market and helped push down Vodafone shares by four percent to 198-1/4 pence by late morning.

BT was unchanged at 599p, while Japan Telecom shot up 17.9 percent to a year high of 2.64 million yen.

Japan drive

The Japan deal highlights Vodafone's drive to be a leading part of a market that will be one of the first to launch third generation (3G) mobiles, which will allow users to download video and music onto handheld devices.

Vodafone Chief Executive Chris Gent said he wants to take on Japanese industry leader NTT DoCoMo.

"The goal is to make J-Phone competitive and give DoCoMo a hard time," he told a press briefing in Tokyo.

Vodafone is also buying 4.9 percent of J-Phone's regional operating units from BT, taking its economic interest in the J-Phone group to about 60 percent.

Controlling stake?

If the opportunity arises, Vodafone will boost its equity holdings in Japan Telecom above 50 percent, Vodafone chief executive Christopher Gent told the Nihon Keizai Shimbun on Wednesday.

Gent also stressed that Vodafone wishes to maintain cooperative relations with other shareholders and will not attempt to claim Japan Telecom with a hostile takeover.

The chief exec also said Vodafone aims to consolidate J-Phone's four group companies into one company by the end of the year.

Analysts say such consolidation would accelerate the group's decision-making and management.

Reuters contributed to this report.

Vodafone buys BT's J-Phone stake
May 2, 2001
Vodafone buying up J-Phone control
April 30, 2001
DoCoMo says nationwide 3G by 2002
April 26, 2001

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