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Cingular Ups AT&TW Stakes to $38 Billion
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By Kirstin Ridley and Siobhan Kennedy

LONDON (Reuters) - Cingular, the second-largest U.S. cellphone group, has thrown down the gauntlet to British rival Vodafone Group Plc by raising its bid for U.S. target AT&T Wireless to $38 billion, a source close to talks said on Monday.

Cingular Wireless, which is controlled by SBC Communications Inc and BellSouth Corp, raised its bid from $35 billion, or around $13-per-share, and the source said Vodafone was expected to hit back with its own improved offer on Monday.

"They (Cingular) have bid $14-per-share," the source said. "We believe Vodafone will at least meet it ... Vodafone couldn't match Cingular yesterday, and they needed today to do that." A $14-per-share bid values AT&T Wireless at just over $38 billion.

Sources familiar with talks told Reuters on Sunday that AT&T Wireless, which put itself up for sale on January 22 after a series of poor results, had asked Vodafone and Cingular for sweetened offers after both groups bid roughly the same price.

Concerns that a takeover would reduce Vodafone's future earnings drove shares in the world's largest mobile phone group down 3.7 percent to 130.9 pence by 1105 GMT. The stock has fallen around nine percent since AT&T Wireless called for bids last month.

"I'm at the point where I really want to see something from the companies," said one London analyst. "If you're buying or selling Vodafone shares today, you're just dealing into uncertainty. Show me the deal."


CALLING FOR A QUICK DEAL


Up to Friday's bid deadline, Vodafone said only it was examining whether a bid would be in investors' interests.

Since then, the group says it makes little commercial sense to show its hand in an auction that was called after Cingular bid an informal $30 billion in cash for its smaller U.S. rival.

But sources familiar with talks said the two camps were battling it out over the long U.S. bank holiday weekend and pressure was mounting for a fast deal.

AT&T Wireless, which is 16 percent-owned by Japan's NTT DoCoMo, has given itself until February 29 to reach a final decision, although an announcement could come as soon as Tuesday.

While some Vodafone investors remain unconvinced about the merits of a bold offer, a growing number are braced for Chief Executive Arun Sarin to fight for an asset that would give the group long sought-for control of a company in the world's most powerful economy and bring its brand across the Atlantic.

Vodafone's camp has been frustrated that auction tactics have prevented it from arguing its case to investors, who have been skeptical of a bid that risks diluting earnings for 10-15 percent for years -- and spells a return to empire-building seen under former CEO Chris Gent.

The market is split on whether Vodafone, which would have to sell a lucrative 45 percent stake in top-ranked Verizon Wireless , can justify out-gunning Cingular. Cingular says it can save an annual $3.0 billion by cutting overlapping staff and businesses in two networks.

"We still see Cingular in the driving seat," said another London analyst. "They have more shareholder support and stand to get more synergies."

Cingular's shareholder SBC said in January it thought the U.S. mobile industry, in which six major national brands and a handful of regional players battle for market share, is ripe for mergers and that it might consider a deal that hurt earnings.

AT&T Wireless is losing both money and customers. The group reported a fourth-quarter loss and in January alone lost nearly four percent of its customers and saw its operating income fall more than 20 percent from a year ago, sources close to the situation have said.

Hopes of a bid war sent AT&T Wireless shares to almost $12 on Friday, valuing the group at $32.56 billion.

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