U.S. mobile group AT&T has ruled out a bid for Britain's Vodafone for now, with banking sources saying a U.S. spying scandal and a surge in European telecom shares may have disrupted a deal that many think could still happen.
AT&T, the second-largest U.S. mobile operator, sparked speculation it could be interested in a potentially 70 billion pound-plus ($115 billion) deal for Vodafone after its chief executive said in October there was a "huge opportunity" in Europe to invest in mobile broadband.
However, after weekend news reports it had met European regulators to sound them out about a deal, AT&T was asked by Britain's takeover watchdog to clarify its position and said in a brief statement on Monday it did not intend to make a bid.
The statement means AT&T cannot make an offer for at least six months, unless Vodafone invites it to do so or a third party enters the fray, and Vodafone shares fell as much as 7 percent.
Analysts said the clarification could provide a reality check to the wider European telecoms sector, which has surged about 24 percent in value over the past year compared with an 11 percent rise in Europe's top share index on the back of several takeover deals - despite there being few signs of an improvement in underlying trading.
But they also said a deal could still make sense for AT&T. The U.S. group is facing a more competitive home market and may be attracted by a European market which analysts think could soon benefit from economic recovery and the sort of growth in superfast 4G broadband seen in the United States.
One banker hoping to advise AT&T on any future Vodafone bid told Reuters the British group, which is in the process of selling out of a U.S. joint venture, remained the perfect partner for AT&T because of its presence across Europe.
AT&T was simply not ready to make an offer, the banker said, adding matters had been complicated further by the discovery of a mass spying programme by the U.S. National Security Agency (NSA), which has sparked particular outrage in Europe.
Another sector banker said a recent surge in Vodafone's share price on speculation of a deal might also have deterred AT&T. Vodafone shares are up 38 percent over the past year.
ADVANTAGES OF A DELAY
AT&T could look at other European operators, such as British market leader EE, though that would give it a much more limited