This is the new International Telecoms face that NN needs to get in:
( Imitate, spread out ).
Europe's Wireless War Heats Up, November 16, 1999
Propelled by a Cell-Phone Pioneer
By ANITA RAGHAVAN, GAUTAM NAIK and WILLIAM BOSTON
Staff Reporters of THE WALL STREET JOURNAL
Chris Gent, chief executive of Vodafone AirTouch PLC, was at a
management retreat at a country house north of London last month when
he got word that Germany's Mannesmann AG was about to unveil a
merger with Orange PLC.
The news left Mr. Gent fuming. He was under the impression that if
Mannesmann, with whom he had partnerships in Germany, Italy and
France, did a deal, it would be with him. Instead, the German company not
only was spurning him, it was invading his home turf with an audacious
acquisition of Vodafone's archrival in the cellular-phone business.
Now Mr. Gent is fighting back. In a marathon
session Monday with his board of directors,
many of whom had to be patched in by
telephone for the urgent meeting, he was
contemplating whether to pull the trigger on a
hostile bid for Mannesmann that could be the
largest hostile takeover offer ever launched.
On Tuesday, Mr. Gent said Vodafone would go back to Mannesmann
with a new bid on Friday and was prepared to make a hostile offer. On
Sunday, Mannesmann, a pipe-making company that is also Germany's
biggest provider of mobile-phone services, turned down a $107 billion
all-stock offer that followed a one-on-one meeting between Mr. Gent and
Mannesmann Chief Executive Klaus Esser in Dusseldorf.
Mr. Esser was defiant Monday, repeatedly telling analysts in a conference
call that the offer was "absolutely unacceptable." He declared that
Vodafone would have to pay twice $107 billion to get his company, a
price hardly likely to appeal to Vodafone or its shareholders.
If Vodafone should succeed in acquiring Mannesmann, the takeover would
rival MCI WorldCom Inc.'s planned buyout of Sprint Corp. -- worth
$115 billion, not counting debt assumption -- as the largest merger ever. It
would also create the world's biggest telecommunications company in
terms of stock-market value, and add new force to a consolidation wave
that is already reshaping the global telecommunications landscape. A
merger between the two would highlight the sweeping changes that are
engulfing corporate Europe, where merger-and-acquisition activity is now
approaching the torrid level of such activity in U.S.
The only one who might not be surprised by all this is Mr. Gent, who
joined what would later become Vodafone the day after it registered its
first phone call from London's Trafalgar Square in 1985 and who has been
championing cellular technology ever since. "It has been a consistent vision
since I have known him," says Fred Salerno, senior executive vice
president and chief financial officer at Bell Atlantic Corp. "He bet the
marketplace would change and he positioned his company to take
advantage of that vision."
Mr. Gent, 51 years old, is eager to get
Mannesmann because it would greatly increase
Vodafone's reach across Europe, the world's most
advanced cellular-phone market. Mannesmann is
not only the biggest cellular-phone service provider
in Germany but the No. 2 provider in Italy as well.
The quest to create super-regional wireless players
has been a long time coming. Wireless, by its
nature, is supposed to cut the telecommunications
cord for consumers, enabling them to make calls
while traveling, not just anywhere domestically but
also internationally. So far, it has proved too
cumbersome, mainly because operators in the U.S., Japan and Europe use
incompatible technologies.
Even in mobile-mad Europe, which has benefited by adopting a single
digital standard, customers pay hefty roaming fees when using their cellular
phones in overseas markets. The result is that mobile phones aren't entirely
mobile. If Vodafone could acquire the German company, though,
Vodafone's customers wouldn't have to pay roaming fees in places where
Mannesmann now offers service.
Mr. Gent is also driven by his vision of cellular phones pushing aside
personal computers as the primary way to access the Internet. For more
than a decade, the cellular phone has been a humble device, mainly used to
make voice calls. Now it is being transformed into a gizmo that not only
replaces old-style phones for some users, but also promises all manner of
new features: access to Web sites, e-mail and even videoconferencing over
the airwaves. If it can really do this, it could change the way people
communicate, while bequeathing riches to Vodafone and other wireless
providers.
Once, few people imagined such possibilities. Back in the early 1980s,
AT&T Corp. dismissed the notion that the then-bricklike cellular phone
would ever amount to much of a consumer product. Even AT&T's
iconoclastic rival MCI Communications agreed, selling its cellular assets to
wireless pioneer Craig McCaw.
But Mr. Gent repeatedly championed the cellular future. Tony Lewis, now
executive director of the Computing Services and Software Association, a
trade group, recalls visiting with Mr. Gent in the early 1980s. "Over lunch,
he said to me: 'I tell you what the future is: It's cellular radios.' He already
had ... some feel for the potential growth."
Mr. Gent was born in the seaside city of Portsmouth and grew up in south
London, the son of a sailor. Skipping college, he joined National
Westminster Bank at the age of 19. Once interested more in politics than in
business, he found time to be chairman of the country's Young
Conservatives for two years. But then Mr. Gent joined defense contractor
Racal Electronics PLC in 1985, just two years after it won the U.K.'s first
cellular-phone license, and soon Mr. Gent was swept up by the idea of
what was then sometimes called cellular radio. In 1991, when Racal
divested itself of its cellular-phone business (renamed Vodafone), Mr.
Gent took the helm.
Determined to transform cellular phones into a mass-market consumer
product, Mr. Gent spearheaded a huge marketing drive, including the
opening of cellular-phone stores on major British streets. After making
Vodafone Britain's biggest cellular-phone service provider, he began
striking wireless deals across Europe in a bid to extend the company's
reach.
Earlier this year, on New Year's Day, Mr. Gent was attending a cricket
match in Australia when he heard that Bell Atlantic had offered $45 billion
for AirTouch Communications Inc., America's biggest independent
cellular-phone company. Mr. Gent long had his eye on AirTouch. Eager to
maintain the element of surprise, he had his staff tell anyone who called that
he had no plans to fly back to London. A few days later, he struck,
bidding $55 billion in cash and stock for AirTouch and clinching the deal
over his cellular phone.
Immediately, though, he ran into trouble. Bell Atlantic, piqued by the
British invasion, decided to dissolve a wireless venture it ran jointly with
AirTouch. Mr. Gent wanted to salvage that relationship, because AirTouch
provided him with access only to the western U.S., and a breakup with
Bell Atlantic would leave Vodafone exposed in the East.
Mr. Gent smoothed the ruffled feathers at Bell Atlantic and, much to
observers' surprise, clinched an even better deal with the U.S. giant,
marrying the companies' East Coast and West Coast networks. During the
negotiating process, says Mr. Salerno, the Bell Atlantic executive, Mr.
Gent would travel to the U.S. and "make real-time decisions on areas of
dispute."
Things have proved tougher with the Mannesmann relationship. Bankers
routinely speculated that Vodafone would one day acquire Mannesmann's
wireless assets and extend its reach deeper into Europe. But when the
German company made its bid for Orange in the U.K., the illusion was
shattered.
Winning Mannesmann won't be easy. In an
interview Monday, the 52-year-old Mr. Esser was
quick to trash Vodafone, saying that the British
company's strategy of holding small stakes in
several European companies was flawed. "They
have a problem and they want us to fix it," he said,
in his office overlooking the Rhine. "The global
approach is interesting, but Vodafone doesn't offer
it."
Mr. Esser argued that Mannesmann's performance
records ought to be enough to persuade investors
to let it stay independent. "Nobody has been
putting the shareholder first like Mannesmann has -- our stock has
appreciated 800% over the past five years," he said. But the market will
decide, he said, adding that Mannesmann isn't planning a "barbed-wire"
defense.
Investors on Monday appeared to be betting against Mannesmann's
avoiding a takeover. On the Frankfurt stock exchange Monday,
Mannesmann's stock jumped 9.5% to 202.98 euros, equal to $209.73. In
London, Vodafone shares slipped 1.3% to close at 292.5 pence, equal to
$4.74. Also in London, Orange rose 8.9% to 1,845 pence, the equivalent
of $29.92.
Mr. Esser clearly has some defenses to deploy. Mannesmann threw its first
wrench into Vodafone's effort on Monday by getting a London court to
enjoin Vodafone's investment banker, Goldman Sachs Group, from
offering any more advice to the company until a court hearing set for
Thursday. Mannesmann contends that Goldman has a conflict of interest.
The German company's articles of incorporation provide that no single
stockholder can vote more than 5% of the company's stock. In theory,
Vodafone could accumulate the vast majority of the shares and still not
obtain a voting majority, although lawyers say that if Vodafone wound up
as the controlling shareholder, Mannesmann's board would have to give it
a voting majority.
Then there is the price. In order to get Mannesmann, Vodafone also must
buy Orange, the U.K. cellular company for which Mannesmann has agreed
to pay $33 billion. Critics of Mannesmann have been griping that it is
buying Orange -- and overpaying -- just to avoid Vodafone's grasp.
Finally, of course, Mr. Esser could seek a "white knight." But he said
Monday: "We are not working on a white-knight strategy. We haven't
spoken to any company about a white-knight strategy. We are making a
value-based defense. If the shareholders were to decide differently, they
are the referee and we would accept their judgment."
For what it's worth, history is on Mannesmann's side. No hostile bidder, let
alone a foreign one, has ever succeeded in taking over a German
company. Mannesmann could try to enlist the country's powerful trade
unions to kick up political opposition to the merger, or encourage the
country's banks and institutional investors to buy Mannesmann shares to
keep them out of Vodafone's hands. German corporate history is filled
with such efforts. |
