Jeremy Frankel reports on the merger's implications

The deal will create the world's largest cellular phone company.

Vodafone trumped the bid of US giant Bell Atlantic, upping its original offer to as high as £40bn ($66.5bn) to secure its prey. This would make the biggest cross-border merger deal in history.

Patrick O'Connell reports on a "classic battle of the boardroom"

Bell Atlantic withdrew from the race on Friday after making the first move, a $45bn offer, on AirTouch in the New Year. Another interested US rival, MCI WorldCom, announced it would not go through with a takeover approach earlier in the week.

Global leader

The new company, Vodafone AirTouch, will have a market capitalisation of $110bn making it the third-largest company listed on London's FTSE 100 index, reaching nearly 1bn people in 23 countries across four continents.

Extraordinary mobile growth predicted

"The merger is a superb alliance of the two leading global mobile operators," said Chris Gent, Vodafone chief executive, in a joint statement. "We share a vision of mobile communications as the principal platform for voice and data communications into the next century and have the people and the assets to realize this vision."

The deal comes amid a frenzy of rising share prices and merger activity in the telecoms industry on the back of forecasts of extraordinary mobile phone growth in Europe and North America over the next four years.

"There's a mad scramble for assets and networks and global reach, and a limited number of players. Nobody wants to be the wallflower when the music stops," said telecommunications analyst Jeffrey Kagan of Atlanta.

Profits wiped out

But Vodafone is paying a high price. The company has conceded the deal will wipe out any prospect of turning a profit for the next two years.

Other recent deals include SBC Communications' $61bn deal with Ameritech and Bell Atlantic' $52.8bn proposal to buy GTE, currently awaiting U.S. regulatory approval.

Already a leader in the UK, Vodafone will now gain a foothold in the US market through the deal. AirTouch has some 7.5m subscribers throughout the US.

The two operators are also expected to complement each other in Europe, where Vodafone has a presence not only in Britain but throughout continental Europe.

The pair are already partners through GlobalStar, a satellite mobile communication company competing with Iridium, which has the only network currently in place.

Share frenzy

Rising share prices in telecoms companies have fueled merger activity with bidders like Vodafone being able to use their own lucrative stock to make attractive offers to rivals' shareholders.

Vodafone is offering AirTouch shareholders about $97 per share, consisting of five Vodafone ordinary shares and $9 in cash.

Its original bid of £33bn ($55bn) has been lifted and, including cash, Vodafone shares and the taking on by the UK operator of $4.5bn in AirTouch debt, the final price is expected to reach the $66.5bn mark.

The deal still requires the approval of both companies' shareholders and regulatory authorities. All going well, the deal is expected to be completed in the second half of 1999.

Vodafone executives will reveal full details of their corporate coup to the City of London in a news conference on Monday.