FOCUS-Mannesmann to buy Orange for $33 billion
(Adds current value of deal, Vodafone share rise, investor comment)
By Kirstin Ridley
LONDON, Oct 21 (Reuters) - Mannesmann AG of Germany said on Thursday it had agreed to buy Britain's third biggest mobile phone company, Orange Plc (quote from Yahoo! UK & Ireland: ORA.L), for 19.8 billion pounds ($33.04 billion) in cash and shares.
Mannesmann Chief Executive Klaus Esser told Reuters his company would also take over two billion pounds of Orange debt.
The offer of 0.0965 new Mannesmann shares and 6.40 pounds cash for each Orange share was worth 16.29 pounds per share at Wednesday's close, a premium of 21.6 percent over Orange's closing price on October 18 when bid talks were first announced.
But its value slipped to 15.85 pounds following a 4.5 percent fall in Mannesmann shares to 151.50 euros by 0840 GMT, reflecting concerns at the rich price being paid.
Orange -- which floated at 205 pence in 1996 -- remained well below the offer price, up four percent at 14.40 pounds, amid some investor reluctance to take Mannesmann paper.
``There's no reason for UK institutional holders of a growth stock in a mobile phone company to want paper in a Duesseldorf-based engineering conglomerate,' said one senior UK equity salesman.
However, one investor in the telecommunications sector said Mannesmann should not be underestimated and had one of the best managements in Germany.
``They are very well regarded, and have done a fantastic job in transforming a steel and pipes manufacturer into a telecoms company and they deserve a lot of credit for that,' he said.
The German group has clinched agreement for its bid from Orange's 44.8 percent controlling shareholder, Hong Kong conglomerate Hutchison Whampoa . This agreement is binding even in the event of a competing or higher offer by a third party and Hutchison has agreed to hold 42.7 million of the 51.8 million shares it will own in the new Mannesmann group for at least 18 months.
NEW PAN-EUROPEAN GIANT
The deal creates a pan-European telecoms operator with key operations in Britain, Germany and Italy and highlights a global consolidation game that saw Germany's Deutsche Telekom snap up Orange's UK rival One2One in August.
Mannesmann, which is paying a hefty price for what analysts say is the last opportunity to gain access to the booming British cellphone market, said it planned to fund the deal partly through an equity financing to raise up to 4.0 billion euros in the first half of 2000.
``We believe that Mannesmann and Orange will offer outstanding integrated coverage across Europe,' Esser said.
``The enlarged group will include three of Europe's five leading wirefree brands -- Orange, D2 (in Germany) and Omnitel (in Italy). It will be well positioned in data and Internet services, the most valuable growing markets in telecoms.'
Orange, the third biggest and youngest of Britain's four mobile phone companies, has over 3.5 million customers and a 17 percent share of the British cellphone market.
If Mannesmann succeeds in its bid, it will have over 20 million mobile phone subscribers in Europe. Vodafone AirTouch Plc (quote from Yahoo! UK & Ireland: VOD.L), the world's biggest mobile phone company, has 31 million customers worldwide.
VODAFONE STILL AN ALLY
Mannesmann's deal throws down the gauntlet to Vodafone -- a partner for Mannesmann in key European markets -- but Esser insisted that the British-based giant remained an ally despite Mannesmann's move into Britain.
``The partnership with Vodafone and us relates to the D2 Mannesmann activity in Germany and the Omnitel activity in Italy and the SFR mobile system in France,' he said in a telephone interview.
``It is very, very important for us because of the large further value potential in D2, Omnitel and SFR.'
Vodafone shares, which had been hit by fears that a Mannesmann-Orange deal would derail its European strategy, added four percent to 267p.
If the bid goes ahead, Orange shareholders will own around 23 percent of the share capital of Mannesmann and Hutchison will become Mannesmann's largest shareholder with around 10.2 percent of the enlarged group.
Mannesmann, which has transformed itself into one of Europe's most dynamic telecoms companies and said last month it planned separate companies for its telecoms and engineering activities, has agreed to help appoint a nominee designated by Hutchison Whampoa to the German company's supervisory board.
Canning Fok, managing director of Hutchison, said the offer represented ``excellent value' for his company's shareholders, while also giving them the opportunity to share in the success of the enlarged business. The deal will bring a HK$113 billion ($14.6 billion) windfall in Hutchison, including the Mannesmann stake.
Hutchison has agreed not to dispose of 42.7 million of its Mannesmann shares for 18 months after issue as well as ``certain other limitations' on disposals.
Merrill Lynch and Morgan Stanley Dean Witter advised Mannesmann while Dresdner Kleinwort Benson, Goldman Sachs and HSBC advised Orange.
(Additional reporting by Keith Weir and Hannfried von Hindenburg in Frankfurt |
