Battle for Vodafone unit

Vodafone's sale of its Japanese mobile phone unit may become Asia's biggest leveraged buyout (LBO).

Cerberus Partners, a US LBO firm that has invested US$8 billion ($12.4 billion) in Japan, and Providence Equity Partners, a buyout firm specialising in telecommunications companies, may bid 1.8 trillion ($23 billion) for Tokyo-based Vodafone KK, said two people familiar with the matter, who declined to be identified because the offer hasn't been made public.

Vodafone, the world's biggest mobile-phone company, said on March 3 that it was in talks to sell the unit to Softbank, Japan's second-biggest internet service provider. The US buyout firms are competing for the third-largest of Japan's mobile phone companies, with a 17 per cent share of the market.

"Whoever wins it will have to rebuild it," said Taiji Yoshida, of Yasuda Asset Management in Tokyo. "Vodafone has taken the wrong path, falling behind rivals in terms of network and subscriber growth."

Hideo Azuma, a spokesman for Softbank, said talks with Vodafone of Newbury, England, are continuing. Vodafone spokesman Bobby Leach declined to comment.

Vodafone chief executive Arun Sarin, who has presided over a 4 per cent drop in the company's market value since he took over in July 2003, is selling control of the Japanese unit after more than US$2 billion of spending failed to increase the company's profit margins. Shares of Vodafone fell 1.4 per cent to 127p in London trading.

Cerberus and Softbank each plan to borrow about 1.2 trillion to help fund their bids for Vodafone KK, four times more than any previous LBO in Japan, four people familiar with the matter said. A Cerberus-led buyout would top the US$2.2 billion takeover of Vodafone's Japanese fixed-line unit in 2003 by New York-based Ripplewood Holdings, Bloomberg data show.

Vodafone KK competes with Tokyo-based NTT DoCoMo and KDDI in winning customers for so-called third-generation services such as fast internet access and downloading music.

Vodafone KK had 15.1 million customers at the end of February, compared with NTT DoCoMo's 50.7 million and KDDI's 25 million.

Asian buyouts rose to US$10.7 billion so far this year, according to data compiled by Bloomberg. That compares with US$17 billion during all of 2005.

Cerberus, named after the three-headed dog that guards the gates to the underworld in Greek mythology, was founded by Stephen Feinberg and William Richter in 1992. Cerberus also is bidding for 51 per cent of General Motors Corp.'s finance unit.

- BLOOMBERG