NEW YORK (CNNfn) - Mannesmann AG's chief executive warned Britain's Vodafone AirTouch Monday not to launch a hostile bid for his company, saying such a move would hurt the companies' European joint ventures.
Klaus Esser, in an interview Monday with CNN International's World Business Today, also said major shareholders had offered their support in the event Vodafone AirTouch proceeds with a hostile bid.
The warning comes one day after Mannesmann, which makes everything from automotive parts to telecommunications gear, rejected a friendly $107 billion takeover offer from Vodafone.
At stake is leadership of a fast deregulating and booming European mobile phone market -- one of the world's biggest growth industries. Vodafone is battling to avoid being squeezed out of prized joint ventures in Germany and Italy, which Mannesmann controls.
Analysts expect Vodafone to respond with a hostile bid as early as Tuesday.
"They would be making a very, very severe mistake," Esser said. While admitting "there's always a price for everything," he said shareholders gave him "strong feedback" they would rather go it alone than risk a possibly detrimental takeover.
Watch the entire interview with World Business Today by clicking here and selecting the format you wish to view in the WBT Streaming Video box.
Weekend meeting fails to produce a deal
Over the weekend, Vodafone CEO Chris Gent met Esser in Dusseldorf and offered 203 euros per share for each Mannesmann share. Mannesmann has the presence in continental Europe that Vodafone, a leader in the United States wireless telephone market, is said to covet.
The companies already have close links on the continent. They jointly own Omnitel, Italy's No. 2 cellular carrier, and Germany's Mobilfunk, the third-largest cellular operator in Europe. They also have minority stakes in France's SFR.
Analysts said Vodafone AirTouch, which huddled with its financial advisors Monday, is likely to come back with a hostile bid. It could afford to pay as much as 240 to 250 euros a share, they said.
"They'll need to pay around 250 euros (per share)," according to James Downie, a telecom analyst with ABN Amro in London. While he said any offer above 230 euros would hurt Vodafone's profits, a deal for Mannesmann is a strategic must.
"Vodafone has to do this or they'll become marginalized. Mannesmann is strategically well placed in Europe," Downie said. He estimated the top price Mannesmann could fetch would be around 270 euros, although he thinks that would be too rich a price for Vodafone.
A hostile offer from Vodafone would become the largest unsolicited bid in history, outstripping Pfizer Inc.'s recent $75 billion bid for American fellow drug maker Warner-Lambert.
The mere prospect of such a bid, coming so soon after Mannesmann's friendly $36 billion acquisition offer for Britain's Orange, has unleashed a torrent of bid talk across Europe's quickly deregulating mobile phone sector.
In the interview, Esser said he doubted whether Vodafone has the willingness or ability to raise its bid.
Noting that Mannesmann shares have risen 800 percent in the last four years, Esser suggested it was unlikely that Vodafone could afford the type of premium that would gel with his company's high-growth strategy.
"I realize that the best telecom portfolio Vodafone can buy is the Mannesmann portfolio," he said.
"We at Mannesmann have another constituency -- to the Mannesmann shareholder. Our shareholders don't want (Vodafone's combination of) low-growth and minority participation in the United States."
The prospect of a hostile bid excited investors in Frankfurt, driving Mannesmann (FMMN) stock 16.50 to close at 201.50 euros. Vodafone (VOD) investors were spooked by concern that it might overpay, pushing the stock down 3 pence to close at 293 in London trading Monday.
Other suitors in the wings?
The likelihood of another solution is also keeping analysts guessing. British Telecom (BT-A) is one of a number of potential white-knight bidders for Mannesmann, with a possible link with France's Vivendi (PEX) also in the cards.
And analysts said Mannesmann's fixed-line and cellular assets would interest U.S. telecoms such as SBC Communications (SBC) or MCI WorldCom (WCOM). MCI WorldCom would have its hands full; it's working to buy Sprint (FON) for $115 billion.
If Vodafone does win Mannesmann, it will need to sell or spin off Orange (ORA) and would not be likely to hold on to Mannesmann's fixed line assets. Mannesmann is already committed to splitting off its engineering activities in 2001.
Although analysts feel a takeover battle is almost certain, they don't see a solution anytime soon: "this will drag on for months," Downie said.