London Times 10/22
Mobile rival is out of reach as Orange is finally sliced
The sound of Ikea furniture being hurled against office walls is likely to reverberate around the Newbury headquarters of Vodafone AirTouch today.
After all, Chris Gent, Vodafone's fiercely competitive chief executive, has found himself in a difficult and unfamiliar position - second position, to be precise.
Yesterday's œ22 billion takeover of Orange, Vodafone's smaller British competitor, by Mannesmann of Germany, has left Vodafone looking like a runner-up in the race to dominate Europe's burgeoning mobile phone industry. To make matters worse, Mannesmann was supposed to be Vodafone's ally. Gent had even been quietly planning a cosy œ60 billion merger between the two companies.
Klaus Esser, Mannesmann's bespectacled chief executive, obviously had other ideas. "The Orange deal makes, I acknowledge, life for management [of Vodafone and Mannesmann] more difficult," Esser gudgingly conceded yesterday. "But it makes life for Mannesmann's shareholders much richer."
It was a brilliant example of German understatement. The two companies have long boasted about their close relationship and their joint ventures include Germany's D2, Italy's Omnitel and France's SFR. Tension among the top ranks at these companies will be difficult to defuse. Yet it was these shared assets that made an eventual get-together between Vodafone and Mannesmann look hugely attractive - and almost inevitable.
Vodafone underestimated Esser's desire for independence, however. Indeed, Esser is determined not to let anything stand in the way of him and his masterplan to rejuvenate Mannesmann by selling its unfashionable engineering business and focusing on its supercharged fixed- and mobile-telephone division.
Yet it is not just Gent who has a right to feel slightly betrayed by Mannesmann's acquisition of Orange. Hans Snook, Orange's chief executive, was blissfully unaware of the takeover approach until Monday morning. Many believe that Snook would far rather have launched his own aggressive German takeover bid for E-Plus, Manesmann's smaller rival.
His ambitions were obviously not shared by Hutchison Whampoa, the Hong Kong investment group that owns 45 per cent of Orange. Canning Fok, head of Hutchison and chairman of Orange, welcomed Esser with open arms when he flew to Hong Kong last week to pitch his œ22 billion takeover plan. For Fok, who had for some time been keen to expand Hutchison's interests in Europe and raise cash for expansion in the US, it was a deal from heaven. For Esser, it was an expensive but necessary way to keep Mannesmann out of Vodafone's jaws.
Esser made up for going behind Snook's back by offering the 50-year-old executive - who is fondly regarded by most analysts for his madscientist hairstyle and visionary outbursts - a wallet-bursting remuneration package. As part of the package, Snook will be able to pick up all of his share options and his long- term incentive-plan bonus (together worth about œ18.5 million) plus a œ15 million "token of appreciation". To top it off, Snook will be paid a future performance-related bonus of up to 30 times his salary, which last year totalled œ780,000. All in all, Mannesmann's takeover of Orange could make Snook some œ60 million richer.
In spite of this, many believe Snook will eventually be poached by a US mobile phone group with an even larger cheque book. Snook, who has yet to confirm that he will join the board of Mannesmann, insists that he is not going anywhere in a hurry. But at yesterday's press conference he looked exhausted and slightly depressed. Even his beautifully prepared video presentation ended up in black and white because of a technical fault.
Snook claims, unconvincingly, that the money does not interest him. "I haven't really added it up [the remuneration package]," he says wearily. "It's not going to change my life. Anyway, it's all on paper and the transaction isn't closed yet."
It certainly isn't. Few in the City doubt that Gent will retaliate in spectacular fashion. An ice-cold œ60 billion hostile bid for Mannesmann is regarded as the most likely move. Indeed, if Mannesmann's shareholders continue to react negatively to the Orange takeover - shares in the group were down 13 per cent yesterday afternoon - the bid could come within days.
"I think shareholders will back a Vodafone bid for Mannesmann," says one telecoms analyst, who describes the œ22 billion price paid for Orange as "absurdly over-valued". "My view is that Vodafone will make it as friendly a hostile bid as possible to allow Mannesmann's management to exit with dignity. And as long as the offer isn't insanely priced, I think Vodafone's shares will hold up."
Without Mannesmann, Vodafone is left with a sprawling collection of assets around Europe, many of which it does not control. Given that Vodafone no longer controls its assets in America (thanks to its recent tie-up with Bell Atlantic) the situation looks pretty serious. In contrast, the combination of Mannesmann and Orange would "control" 20.4 million European subscribers compared with Vodafone's 12.7 million. Even Telecom Italia would be ahead of Vodafone, with 18 million controlled subscribers, leading analysts to believe that Vodafone could bid for its TIM subsidiary if it failed to buy Mannesmann.
Other significant players in the European market are Deutsche Telekom, which recently paid œ8.4 billion for One 2 One (interestingly, Mannesmann backed out of the bidding because it thought it was too expensive) and France Telecom, which recently paid œ5 billion for a 60 per cent stake in Germany's E-Plus. British Telecom, meanwhile, owns BT Cellnet in the UK and has a 45 per cent stake in Germany's Viag, plus a rather scattered collection of other European assets.
Vodafone is still a heavyweight player in the European market, but many believe that this will not be enough for Gent. Launching a hostile takeover bid in Germany will be difficult, but not impossible. After all, Gent managed to complete a friendly tie-up in the US with Bell Atlantic only months after gatecrashing its merger talks with AirTouch and walking away with the œ40 billion prize. Vodafone's shareholders are depending on his ability to pull-off a similar stunt in Europe.
|
