Paulson Raises Merger Bets by Adding to Vodafone Stake

Paulson & Co., the $18 billion hedge-fund firm run by billionaire John Paulson, increased its stake in Vodafone Group Plc in a bet the phone company may be a takeover target.

Paulson & Co., which is based in New York, added 17 million American depositary receipts of Vodafone last quarter, bringing its holding to 20 million ADRs valued at $703.6 million as of Sept. 30, according to a regulatory filing yesterday. The firm also raised its stake in T-Mobile US Inc., adding 2.76 million shares and bringing the total value of its holding to $504.7 million.

AT&T Inc. executives are laying the groundwork internally for a potential takeover of Vodafone next year, mapping out a strategy for a complex deal with Europe’s largest mobile carrier, people familiar with the situation said this month. Paulson has made money this year from takeovers of MetroPCS and Sprint Corp. after correctly predicting consolidation in the industry. He said last month he considers Vodafone a takeover candidate.

“We believe a stand-alone Vodafone could be an attractive potential acquisition target and offers the opportunity for further upside through a simple rerating or takeover premium,” Paulson & Co. wrote in a third-quarter report to investors.

While Vodafone, based in Newbury, England, and AT&T haven’t entered formal negotiations, the largest U.S. phone company is intensifying work on which Vodafone assets it would retain after a deal and who could buy others, the people said, declining to be identified discussing private deliberations. AT&T, which remains interested in U.K. carrier EE as an alternative target, is also formulating a strategy for Vodafone’s operations in Europe, where mobile broadband adoption has lagged the U.S., the people said.

FedEx Stake

Paulson became a 2.3 percent stakeholder in T-Mobile US when the mobile-phone company merged with MetroPCS in May. He raised his stake to 2.7 percent at the end of the third quarter. He said in July that the company is a likely takeover target for Dish Network Corp. or Sprint Corp.

Paulson’s firm joined activist investor Daniel Loeb and billionaire George Soros in buying shares of FedEx Corp. in the third quarter. The firm bought 646,800 shares of the operator of the world’s largest cargo airline.

Loeb, who has pushed for change at companies including Sony Corp., said earlier this week his Third Point LLC took a stake in FedEx, which is in the midst of a $1.7 billion restructuring program to lower costs and boost earnings with steps such as cutting air capacity to Asia, retiring older planes and offering employee buyouts.

Joining Jana

Paulson & Co. bought 5.6 million shares, valued at $248.7 million, of Mallinckrodt Plc, joining Jana Partners LLC in buying a new stake in the former pharmaceutical business of Covidien Plc that spun off to become a stand-alone company in June. Jana, in a letter to investors earlier this month, said the company has two drugs that are in “very late stages” of the U.S. Food and Drug Administration’s approval process. It didn’t say whether it will push for changes at the company.

The firm bought 4 million shares of Time Warner Cable Inc. valued at $446.4 million, making it the biggest new purchase in the third quarter. Chief Executive Officer Jeffrey Bewkes has focused Time Warner’s growth strategy on its TV business, which accounts for more than 70 percent of operating income. After spinning off AOL Inc. and Time Warner Cable Inc. in recent years, he’s now offloading the magazine publisher Time Inc.

Money managers who oversee more than $100 million in equities must file a Form 13F within 45 days of each quarter’s end to list their U.S.-traded stocks, options and convertible bonds. The filings don’t show non-U.S. securities or how much cash the firms hold.

Armel Leslie, a spokesman for Paulson & Co. with WalekPeppercomm, declined to comment on the filing.

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