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London: As Vodafone Group Plc nears an exit from its 14-year-old US wireless venture with Verizon Communications Inc., Europe’s biggest mobile-phone company may have to make a tough choice: buy or be bought.

AT&T Inc., which has scoured Europe for potential acquisitions this year, would examine assets that remain after Vodafone sells its 45% stake in Verizon Wireless, people familiar with the matter said. The US company is only interested in wireless and would be deterred if Vodafone expands in cable and fixed-line businesses, said one of the people, asking not to be named discussing internal deliberations.

Vodafone and Verizon are discussing a price of about $130 billion for the stake, people with knowledge of the talks said. AT&T could pay about £80 billion for what’s left of Vodafone, according to Robin Bienenstock, an analyst at Sanford C. Bernstein, basing her estimate on a valuation of six times earnings before interest, tax, depreciation and amortization.

“Were somebody to buy Vodafone, AT&T would be the primary candidate," said James Barford, a telecommunications analyst at Enders Analysis in London. “AT&T would both be likely to summon the financial resources and has already expressed an interest in Europe."

Vodafone is one of Britain’s most global non-financial companies with assets from Sydney to Johannesburg overseen from a bucolic headquarters outside London. To revive its European business, where wireless mergers are hampered by regulation, chief executive officer Vittorio Colao has started acquiring wireline assets, agreeing in June to pay $10 billion for Germany’s largest cable-television provider.

Attracted to Europe

AT&T has examined takeover candidates including Vodafone’s assets, UK mobile carrier EE—a venture of Deutsche Telekom AG and Orange SA—and parts of Spain’s Telefonica SA, people familiar with the company’s plans said in June. AT&T is attracted to Europe because of its relatively recent introduction of faster, fourth-generation networks, which have been available for years in the US.

Brad Burns, a spokesman for Dallas-based AT&T, declined to comment on any potential M&A targets. Ben Padovan, a spokesman for Newbury-based Vodafone, declined to comment on whether the carrier may become a takeover candidate.

Vodafone would fit AT&T’s global strategy, and the cash proceeds from the Verizon Wireless stake sale could make it more interesting for an acquirer, Bienenstock said.

Cash conundrum

Verizon is working with several banks to raise $10 billion from each, or enough to finance about $60 billion of the buyout, people familiar with the plans have said. In a statement on Thursday, Vodafone said there’s no certainty an agreement with Verizon will be reached.

With £30-40 billion cash in its pocket, Vodafone would quickly look an attractive target, Bienenstock wrote in a note. Alternatively, Vodafone could use the cash to build a bigger business itself. This would be more risky and time consuming, but it could be more fun and, depending on one’s view, more value creating.

AT&T’s likely strategy would be to accelerate Vodafone’s 4G rollout, Enders’s Barford said. Vodafone switched on its 4G service in the UK on Thursday, while consumers in some other European markets are still waiting for speedier connections.

The US carrier is unconvinced of the advantages of running combined fixed-line and wireless networks, and would be more interested in Vodafone were it to remain a primarily mobile provider, said one of the people.

Vodafone has already expanded beyond wireless service, and in June beat John Malone’s Liberty Global Plc to take over Germany’s Kabel Deutschland Holding AG. Vodafone and Verizon accelerated talks on the stake sale after the Kabel Deutschland offer, which put additional pressure on the British company’s finances, a person familiar with the matter said.

Low valuations

If 51-year-old Colao opts to step up acquisitions, the Verizon Wireless stake sale would supply the funds to buy almost any company in the industry at a time when valuations of European telecommunications firms are at an all-time low. At the end of its last fiscal year ended in March, Vodafone had about $11.8 billion in cash and cash equivalents. It reported net debt of £24.9 billion as of 30 June, including its joint ventures.

Vodafone’s cash pile alone, including the Verizon Wireless proceeds, would be worth more than the combined market capitalization of France’s Orange, at $27 billion, and Telecom Italia SpA, at almost $12 billion. Liberty Global, which has cable operations in countries including Germany and the Netherlands, is valued at about $30 billion.

Vodafone is now heavily focused on mature European markets such as Italy, the UK and Germany. It also has operations in Asia and Africa.

Broadband expansion

Expansions into fixed-line businesses have two primary advantages for mobile operators. Selling so-called triple- and quadruple-play packages that combine mobile, landline, TV and broadband services makes customers more reluctant to upend their entire digital lives by switching providers. Owning high- capacity fiber-optic networks helps carriers deal with the demands of surging mobile-data traffic.

Last year, Vodafone bought Cable and Wireless Worldwide Plc, an operator of UK fixed-line networks, for $1.8 billion. Its deal for Kabel Deutschland is adding a formidable fixed-line operation that Vodafone will combine with its mobile business in Germany.

Vodafone was also considering an acquisition of Italy’s Fastweb SpA, people familiar with the matter told Bloomberg News in June. Other European cable companies that aren’t part of a larger multinational group include Spain’s Grupo Corporativo ONO SA, France’s Numericable SAS and Zon Multimedia SGPS SA in Portugal.

Both the US and European telecommunication markets stand to face some tough competition with the increasing move towards converged, triple-play offers, said Ronald Klingebiel, a professor at the Warwick Business School. To weather these impending storms, Vodafone is right to sell the stake so it can concentrate on its priority markets in Europe.

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