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Vodafone eyes new bid
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November 16, 1999: 7:18 a.m. ET
Record profit announced, but market awaits next move for Mannesmann
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LONDON (CNNfn) - Britain's Vodafone AirTouch unveiled record half-year pretax profit of 1.2 billion pounds ($1.94 billion) Tuesday, but investors remained focused on the cellular firm's aggressive ambitions toward German rival Mannesmann after it said it would make a fresh bid by Friday.
Vodafone said it will start meeting with shareholders Tuesday to discuss the price it should offer for Mannesmann, and hopes to have another approach ready by Friday.
Mannesmann has a board meeting scheduled for Friday to discuss its plans to offer its engineering activities as a separate stock. Vodafone will convene its own board meeting Thursday.
Along with its earnings, Vodafone also released the rationale behind its $107 billion approach to Mannesmann over the weekend.
"Disappointment" at rejection
Vodafone chief executive Chris Gent confessed to "disappointment" at Mannesmann's brusque rejection of his approach, and said "The wireless businesses of Mannesmann and Vodafone AirTouch belong together."
If a deal is completed, Vodafone promised to offer holders separate shares in U.K. cellular rival Orange (ORA), which is in the process of being acquired by Mannesmann (FMMN).
Gent highlighted the strategic and monetary attractions of bringing together Vodafone and the German firm, pointing out the enlarged company would have more than 42 million cellular customers, and would control the four largest cellular companies in Europe not connected to former state telecom monopolies.
Vodafone is already a minority shareholder in Mannesmann's Mobilfunk and Omnitel units. Mobilfunk operates Germany's D2 network, the country's most popular. Omnitel is Italy's second-largest cellular operator, behind Telecom Italia Mobile, Europe's largest company -- until the Mannesmann-Orange deal goes through -- with 18 million subscribers.
In purely financial terms, Gent maintained that combining the companies would generate extra after-tax profit of 600 million pounds a year by 2004.
Vodafone's weekend offer was worth 203 euros per share, valuing Mannesmann, including Orange, at 103 billion euros.
Europe's largest company?
A combined Vodafone/Mannesmann would be Europe's largest company by market value, estimated to be more than $260 billion, and would be the world's largest telecom company by market value.
Vodafone's 203 euros per share offer was rejected as "extremely unattractive" by Mannesmann. The German firm's chief executive, Klaus Esser, firmly rebuffed any need for his company to link with Vodafone or any other company in an exclusive interview with CNN Monday.
Mannesmann raised the stakes in its defense late Monday when it obtained a temporary injunction against a Vodafone financial adviser, Goldman Sachs. Goldman advised Orange on its takeover by Mannesmann last month, and had previously acted for Mannesmann. The German firm claimed Goldman would suffer a conflict of interest if Vodafone makes a hostile bid with the investment bank's support.
Analysts have calculated that Vodafone can pay up to 230 euros to 240 euros before the purchase dilutes the British firm's future earnings. However, they also said the price would have to be above 250 euros to make it a knockout blow.
Fears of overpaying weigh
Fears that Vodafone (VOD) will be forced to overpay have proved a drag on the company's stock price recently. Despite an early uptick in London Tuesday on the back of the better-than-expected earnings, the shares fell a further 4 percent by midday to stand at 281 pence. Mannesmann shares continued their surging form of recent weeks, jumping a further 3 percent to 208.2 euros in Frankfurt.
"Vodafone has to do this (bid), or become marginalized. Mannesmann is strategically well placed in Europe," commented James Downie, telecom analyst at ABN Amro
Vodafone's earnings announcement was complicated by the merger that created the company, but on a proforma basis -- assuming Vodafone and AirTouch had merged a year earlier -- revenue in the six months ended Sept. 30 jumped 36 percent to 5.78 billion pounds.
Underlying operating earnings soared 28 percent to 1.30 billion pounds, and earnings per share before goodwill and one-time items rose 29 percent to 2.25 pence per share. At the end of September the company had 31.5 million subscribers, up from 19.8 million at the end of September 1998. 
-- from staff and wire reports
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