Vodafone to Buy Mannesmann for $198.9 Billion in Stock Swap, People Say
By Christine Harper and Robert B. Cox
Vodafone AirTouch to Acquire Mannesmann, People Say (Update4)
(Adds comment from James in fourth paragraph and Sheedy in
13th, background throughout; closes shares in fifth paragraph. For
a special report on the takeover, see EXTRA .)
London, Feb. 3 (Bloomberg) -- Vodafone AirTouch Plc, the
world's largest wireless-communications company, agreed to buy
Mannesmann AG in a $198.9 billion stock swap, the biggest takeover
ever, people familiar with the companies said.
Vodafone will pay 59 of its shares for each Mannesmann share,
giving the German company 49.5 percent of the combined group, the
people said. That values Mannesmann at 372.88 euros ($365) a
share, 15 percent more than yesterday, based on closing prices.
The agreement, subject to approval by Mannesmann's
supervisory board today, ends a three-month campaign by Vodafone
Chief Executive Chris Gent for control of Germany's largest
cellular company, making it Europe's biggest phone business. With
about 10 percent of the world's mobile phone customers, the group
also would dominate mobile Internet services.
``There will be nobody that has a global mobile proposition
other than this enterprise,' said Mark James, an analyst at
Nomura International who recommends buying Vodafone shares. ``The
power that this company will have to call the shots in wireless
Internet is enormous.'
Vodafone's stock fell 17 pence, or 4.4 percent, to close at
368.5p ($5.90). Mannesmann rose 0.5 euro to 325.50.
Esser to Leave
The Dusseldorf-based company's chief executive, Klaus Esser,
would lose his job as part of the agreement, the people said. The
companies declined to comment on the matter, reported earlier in
the Wall Street Journal Interactive edition.
When Vodafone made its bid in November, a foreign company's
chance of pulling off a hostile takeover of a German firm seemed
remote, at best. German companies insulated themselves from such
raids for decades through cross-shareholdings with their banks.
Pirelli SpA, for example, gave up a 1991 bid for Continental AG,
saying German banks ganged up to frustrate it.
Since then, the outlook for German takeovers changed along
with the nature of German shareholders. More private investors --
and foreigners -- now own shares in Germany. Both are more likely
to be influenced by money than by corporate loyalties: the
doubling of Mannesmann's shares after Vodafone's bid made a
takeover more likely.
Banks still wield influence. Even that is likely to wane,
though, if Germany enacts legislation to cut capital-gains taxes
on asset sales. That would encourage institutional investors to
sell industrial stakes to free up capital that could be invested
more profitably elsewhere, analysts said.
The takeover ``is great news for those investing in
Germany,' said Michael Nicol, who helps oversee 750 million
pounds at Scottish Value Management, including stakes in
Mannesmann and Vodafone. ``This could open doors in Germany.'
Record-Breaker
The transaction, to create a company with more than 42
million cellular customers, would be the biggest takeover in
history, surpassing America Online Inc.'s pending $154.8 billion
acquisition of Time Warner Inc.
Vodafone's 51-year-old chief will head a company that can
challenge AT&T Corp. in the U.S., NTT DoCoMo in Japan and any
other contender.
``They will be the biggest mobile Internet provider in the
world and possibly even one of the biggest Internet providers in
the world,' as online services move to wireless devices, said Tim
Sheedy, a senior analyst at International Data Corp.
There will be 1 billion mobile phone subscribers by 2003,
compared with 427 million at the end of 1999, IDC estimates.
Worldwide, those users will generate $520 billion in revenue
in 2002, according to Herschel Shosteck Associates in Wheaton,
Maryland, compared with $270 billion in 1999.
Mannesmann's Transformation
Mannesmann's Esser helped transform the former engineering
company, inventor of the seamless steel tube. Phone services are
now the fastest-growing business and account for more than one-
third of sales and two-thirds of operating profit.
In 1997, Mannesmann Mobilfunk surpassed Deutsche Telekom AG
as the top mobile phone company in Germany, Europe's biggest
market. Last year it gained control of Omnitel Pronto Italia SpA,
Italy's No. 2 phone company, and Orange Plc, No. 3 in the U.K.
For Vodafone's Gent, buying Mannesmann would be a critical
step in an effort to dominate the global cellular market. Last
year, Vodafone bought AirTouch Communications Inc. of the U.S. for
about $60 billion to become the world's biggest cellular company.
Vodafone and Mannesmann had worked together for years in the
mobile phone business in Germany, France and Italy.
Mannesmann's acquisition of Orange from Hong Kong's Hutchison
Whampoa Ltd. last year made it Europe's top wireless company, and
sparked Vodafone's takeover approach. The initial offer was 53.7
Vodafone shares for each Mannesmann share. That would have given
the German company 47.2 percent of a combined group.
Mannesmann rebuffed the offer, arguing that its strategy of
combining traditional and cellular services was better than
Vodafone's narrower focus on mobile services. The price was too
low and Mannesmann was more advanced in offering mobile Internet
services, the company argued.
Sweetener
Gent sought to address those concerns in recent months. Last
month, he said he would be willing to offer more stock if Esser
backed the transaction.
Four days ago, Vodafone struck an agreement with Vivendi SA,
the biggest shareholder in France's second-largest phone company,
to form an Internet portal -- an entry point for Web users -- for
all of their customers in Europe. Vivendi, which had been seen as
a possible Mannesmann ally, also said it might cooperate with
Vodafone on building a traditional phone network.
Yesterday, Vivendi said the Vodafone venture was in talks to
buy Bertelsmann AG's 50 percent stake in AOL Europe, the region's
second-biggest Internet service, to gain access to its 2.7 million
subscribers.
An agreement would come four days before Mannesmann
shareholders were to vote on the U.K. company's bid.
Goldman Sachs Group Inc. and Warburg Dillon Read are advising
Vodafone. Morgan Stanley Dean Witter & Co., Merrill Lynch & Co.,
J.P. Morgan & Co. and Deutsche Bank AG are advising Mannesmann.
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