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Vodafone seals deal
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February 4, 2000: 11:03 a.m. ET
Mannesmann board relents, accepts $198B telecom takeover offer
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LONDON (CNNfn) - German telecom operator Mannesmann accepted Vodafone AirTouch's $198 billion takeover offer Friday, sealing the biggest-ever corporate buyout and paving the way for the formation of the world's largest wireless operator.
The Duesseldorf-based company's supervisory board agreed to recommend the offer to Mannesmann shareholders, rubber-stamping the accord that Britain's Vodafone reached late Thursday with the German company's management.
After three months of fending off Vodafone's hostile offer, which would have left Mannesmann shareholders with 47.2 percent of the combined company, the German company gave a green light to a deal giving its shareholders 49.5 percent of the new firm.
A combined Vodafone-Mannesmann would have 31 million cellular subscribers in Europe and 42 million in total. It would have a market value of about 338 billion euros, far ahead of Europe's current number one, Finnish cellular-phone manufacturer Nokia, which is valued at 220 billion euros.
Vodafone AirTouch was formed last year when the U.K.'s Vodafone bought California-based cellular operator AirTouch Communications for about $60 billion, outbidding Bell Atlantic and putting itself into second place in the U.S. mobile-phone market, behind AT&T Wireless.
The revised offer is 58.96 Vodafone shares for each Mannesmann share, up from the previous offer of 53.7 to 1. That puts a value of 351 euros, or roughly $350, on each Mannesmann share, setting a price of $180 billion on the company's entire equity, before assumed debt of $17.8 billion. The new terms represent a 9.8 percent increase in Vodafone's previous offer.
Analysts praised Mannesmann CEO Klaus Esser for extracting good value for the company, despite his personal opposition to a deal with Vodafone.
"He's got them [Mannesmann shareholders] 49.5 percent of the enlarged group, despite his firm contributing only 35 percent of operating earnings," commented James Downie, cellular analyst at ABN Amro in London. Mannesmann shareholders have until Feb. 17 to accept or reject the offer.
"We have agreed between us that Vodafone AirTouch will be making a revised proposal to Mannesmann shareholders," Chris Gent, Vodafone's chief executive, said in a hastily-assembled news conference at Mannesmann's Duesseldorf headquarters Thursday. He added the German company's
management board is recommending the bid.
The battle upended traditional assumptions about the way deals are done in continental Europe, and laid bare the contrasts between the relatively freewheeling and at times aggressive Anglo-Saxon model of takeovers and the more consensual German one.
Vodafone said Friday it was confident the deal would satisfy European regulators. The company also vowed to "keep its eyes open" for takeover opportunities in Asia and to further consolidate its position in Spain by trying to secure a majority stake in Spanish telecom company Airtel within the next month.
As a result of the deal, Vodafone said Friday it expects to split off Orange, the U.K. mobile phone operator whose surprise acquisition by Mannesmann last October was seen as a threat to Vodafone's Europe-wide expansion strategy. Vodafone claimed a "number of people" have expressed interest in buying Orange.
Throughout the hostile takeover battle, Vodafone had said it was reluctant to offer Mannesmann shareholders more than 50 percent of the new company. For its part, Mannesmann had said all along that it wouldn't accept a takeover that gives its shareholders a minority of any enlarged company.
Vodafone's pursuit of Mannesmann began with what it called a "friendly" approach, which soon turned into a bitter battle, involving a personal duel between Gent and Esser. Both companies' managers had appealed to Mannesmann's major shareholders for support in tours across Europe and the United States.
The two companies also have clashed over growth strategy. Vodafone proposed shedding Mannesmann's fixed-line telecom interests, whereas the German company argued it would have better growth prospects by keeping all its telephone activities.
World's Biggest Telecom Deals
It was the $36 billion purchase of Orange that sparked Vodafone's pursuit of Mannesmann. Prior to that the two companies were collaborators, jointly owning Germany's largest cellular operator D2, and Italy's second most popular cellular firm, Omnitel.
Mannesmann transformed itself during the 1990s from a maker of steel pipes, auto components and materials-handling equipment into Europe's biggest mobile-phone operator. Rapid growth in its telecom activities has given this side of the company the vast bulk of its total value. Mannesmann last year announced plans to spin off the manufacturing business, allowing it the freedom to grow by itself.
Observers had speculated that, if the deal were approved, Esser would leave the company, paying the price for his vehement opposition to Vodafone's unwanted advances. Late Thursday, executives said he would stay on for several months after a deal is consummated to help with the transition and then become a non-executive deputy chairman. The new company's 19-member board will have 5 Mannesmann representatives, including Esser. 
-- from staff and wire reports
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