Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Technology Stocks : Vodafone-Airtouch (NYSE: VOD) -- Ignore unavailable to you. Want to Upgrade?

To: MrGreenJeans who wrote (2027)	10/22/1999 8:02:00 AM
From: MrGreenJeans	Read Replies (1) \| Respond to of 3175

Santa Klaus Klaus Esser may be too clever by half. Mannesmann's chairman has pulled off a brilliant strategic move in swallowing Orange. Not only does the UK mobile phone group slot neatly into the pan-European network he has been assembling but it also amounts to a sharp kick where it hurts for Vodafone AirTouch, Orange's biggest rival in the UK and a long-time suitor of Mannesmann. But Mr Esser has paid such a high price for Orange that he risks alienating his shareholders. It is no wonder Hutchison Whampao, Orange's 45 per cent shareholder, has accepted the offer despite previously indicating it had no intention of selling out. It is no wonder either that Mannesmann's stock fell 8 per cent yesterday. If the shares fall further, the German group could be vulnerable to a spoiler bid from Vodafone. Mannesmann's mainly paper offer is worth over œ18bn. That works out at $7,300 for each subscriber Orange is expected to have at year end - roughly twice the implied value of $3,700 the stock market is putting on Mannesmann's own mobile subscribers. Or look at valuation from another perspective. Orange is being taken out at over 30 times next year's earnings before interest tax, depreciation and amortisation. Mannesmann's own ebitda multiple is less than 20. It is hard to see how the undoubted industrial logic of the combination can compensate shareholders for such massive dilution. The E100bn question is whether Vodafone is going to step in with a hostile bid for Mannesmann. It would dearly love to acquire the German group. Not only do their operations fit like hand and glove but a Mannesmann/Orange combination would knock a huge hole in Vodafone's European strategy. Vodafone is the minority partner in Mannesmann's German and Italian networks. Its plan was to woo Mannesmann and together form a pan-European mobile business - something the German group is now doing with Orange. The risk is that Vodafone's investors might start viewing it less as an integrated global business and more as an investment trust. But Mannesmann is bristling with takeover defences. For a start, it would be impossible to stop the Orange deal. Mannesmann's bid is not conditional on its own shareholders' approval - and could not even be abandoned if Mannesmann was acquired by Vodafone. Then there is Hutchison's position. It has agreed not to sell 8.5 per cent of its stake in Mannesmann for 18 months. As if this were not enough, the German group's articles of association specify that no shareholder can vote a shareholding of more than 5 per cent. One option for Vodafone is to play a long game. By the middle of next year, the 5 per cent limit will be abolished. Mannesmann will also be further advanced in splitting off its engineering division, another poison pill. Vodafone could then swoop in with an offer. True, it would probably have to sell Orange at a big loss. But that would be relatively small change in the context of such a mega-deal. Vodafone might also hope the longer it waits, the more Mannesmann's stock will fall. The snag is its own stock may also come under pressure. Vodafone has a sky-high rating because investors believe in its vision. Mannesmann's move on Orange has undermined that.