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Vodafone gets key backing
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November 18, 1999: 3:49 p.m. ET
Reports say shareholders support $128B hostile bid of Mannesmann
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LONDON (CNNfn) - Vodafone AirTouch executives received a green light from the company's biggest shareholders to launch a $128 billion assault, the world's largest hostile takeover bid, on Germany's Mannesmann, according to reports Thursday.
The board of Vodafone AirTouch (VOD), the U.K.-based leader in mobile phone service, was meeting Thursday to clarify their stance before Mannesmann holds a board meeting Friday. A Vodafone AirTouch spokeswoman declined to comment about the meeting late Thursday in London.
The Financial Times reported that shareholders gave "strong backing" to a hostile assault on Mannesmann (FMMN). The newspaper said Vodafone is now mulling an offer at up to 240 euros per share, valuing Mannesmann at 124 billion euros ($128 billion).
Meanwhile, the High Court of Justice in London delivered a victory to Vodafone by refusing the German mobile phone company's effort to stop the bidder from receiving advice from investment bank Goldman Sachs.
Mannesmann had accused Goldman, which Vodafone hired as one of its financial advisers, of giving secret Mannesmann information to Vodafone. Goldman got a close look at Mannesmann when it advised the Germany company in its merger with British cell-phone service provider Orange Plc.
Goldman withdrew from advising Vodafone while the matter played out in court.
No cash component
The support from Vodafone shareholders comes after Mannesmann rejected a friendly $107 billion bid over the weekend. The Financial Times, citing a person close to the matter, reported that Vodafone refuses sweeten the deal with a cash component.
"The wireless businesses of Mannesmann and Vodafone AirTouch belong together," Chris Gent, Vodafone chief executive officer said in explaining his company's rationale for that $107 billion offer.
Vodafone began a series of meetings with shareholders Tuesday, many in the United States, to discuss the price it should offer for Mannesmann. Mannesmann's Friday board meeting was originally scheduled to discuss its plans to hand back shares in its engineering activities to investors.
Vodafone faces an uphill struggle, no matter how much it eventually offers. German corporate law weighs heavily against hostile takeovers.
Vodafone has promised to hand back to shareholders stock in British cellular rival Orange (ORA), which is in the process of being acquired by Mannesmann.
Strategic attractions
Gent has 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 player -- until the Mannesmann/Orange deal goes through -- with 18 million subscribers.
In purely financial terms, Gent maintained that combining the companies would generate cost savings of 600 million pounds a year, after tax, by 2004.
"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 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 interview with CNN Monday.
Analysts have calculated that Vodafone can pay up to 230 euros to 240 euros before the purchase dilutes the British firm's future earnings.
Fears that Vodafone (LSE:VOD) will be forced to overpay have proved a drag on the company's stock price recently, although the shares bounced 6 pence to 293 pence Thursday. Mannesmann shares jumped 6 percent to 208 euros in Frankfurt.
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