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Mannesmann ready to play defence German giant gearing up to fight Vodafone's hostile bid
By Gareth Vaughan, CBS MarketWatch
Last Update: 4:26 AM ET Nov 22, 1999
NewsWatch
LONDON (CBS.MW) -- Mannesmann AG, the German telecom and engineering group, was poised to launch a wide ranging defensive strategy Monday in a bid to fend off the hostile takeover bid from British-based mobile phone giant Vodafone AirTouch PLC.
However, the Wall Street Journal Europe reported that Vodafone's record $128 billion (124 billion euros) bid Friday -- its second offer -- is getting closer to an offer that Mannesmann's Chief Executive, Klaus Esser, would find acceptable. "If there is another offer that is good enough, we would recommend it," Esser said in the Journal report.
Friday Mannesmann's executive board recommended to its shareholders that they reject Vodafone's approach, which the U.K.-based group's Chief Executive, Chris Gent, described as Vodafone's final offer. See full story.
Mannesmann said in a statement that the increased bid still undervalues it.
Mannesmann's supervisory board next meets on Nov. 28 and the German group is set to announce that its to spin off its automotive and engineering businesses much faster than expected. Back in September Mannesmann said it would split the two units into a separately listed company from its telecom assets, which would then be floated in early 2001.
The Financial Times reported that the German group is also expected to reveal that the tax bill resulting from the demerger would be significantly less than the 2 billion euros to 2.5 billion euros expected. Mannesmann is also expected to release its earnings figures for the first nine months of 1999 now that it's freed from restrictions on profit forecasts imposed as a result of its takeover of Orange PLC, the U.K.'s No. 3 mobile phone operator. Mannesmann is also expected to launch an investor roadshow.
Mannesmann looking for a French saviour?
Meanwhile, press reports have emerged suggesting that Mannesmann's held exploratory talks with the French conglomerate Vivendi SA to see if the French group could become a part of the German group's defensive strategy. A Mannesmann spokesman, Manfred Soehnlein, said he wouldn't comment on speculation but said the company would be releasing a statement late Monday or early Tuesday. No Vivendi spokesperson was immediately available to comment.
Meanwhile, Esser is still adamant Mannesmann can go it alone -- without Vodafone and its record 124-billion-euro hostile bid, or a white knight. Mannesmann's chief executive argues that the German group's cellular phone and fixed-line European strategy is superior to Vodafone's mobile phone only strategy.
Mannesmann also found an ally in German Chancellor Gerhard Schroeder, who expressed reservations about hostile takeovers from foreign companies. Speaking in Florence over the weekend, Schroeder said said that for the time being it's an issue that's between companies. However, he added that "I would put emphasis on there not being hostile takeovers." British Prime Minister, Tony Blair said however, that governments should respect shareholder power.
In London trading Monday, Vodafone shares added 0.75 pence to 276.25, while over in Frankfurt, Mannesmann sank 4.60 euros, or 2.4 percent, to 188.5.
Bixd values Mannesmann shares at 240 euros each
Vodafone launched its hostile takeover offer of 124 billion euros for Mannesmann Friday, valuing the German group's shares at 240 euros each, based on Vodafone's closing price of 285 pence in London on Thursday.
Vodafone AirTouch (VOD: news, msgs) said it's offering 53.7 of its own shares for each Mannesmann share.The offer values Mannesmann's share capital -- including the full acceptance of Mannesmann's offer for Orange PLC -- at 120 billion euros.
Although no hostile takeover bid has ever succeeded in Germany before, some analysts think this one may.
"The world is changing and Germany is desperate to show it's a capitalist country," said John Tysoe, London-based telecom analyst at West LB Panmure. "There's a reasonable chance that Mannesmann shareholders will accept it," he added.
A combination of the British and German companies would establish the world's biggest mobile telecom operator with more than 42 million customers worldwide.
In Frankfurt trading Friday, Mannesmann shares rose initially, before tumbling 14.10 euros, or 6.8 percent, to close at 193.4. In London, Vodafone AirTouch lost 8 pence, or 2.8 percent, to 275.5.
Mannesmann's chief executive, Klaus Esser, said late Friday that a merger with Vodafone AirTouch would be a "risky" venture for shareholders unless a cash element was included. He added that Mannesmann's supervisory board supports the management's position.
Vodafone sees cost savings
In a statement, Vodafone said a tie-up with Mannesmann would generate cost savings of at least $808.4 million (500 million pounds) in 2003 and $970 million (600 million pounds) in 2004.
"I am convinced that a combination of Mannesmann and Vodafone will produce enhanced growth prospects and superior value for the shareholders of both companies," Chris Gent, Vodafone's chief executive, said in a statement.
"I hope that the shareholders of Mannesmann will accept our all-share offer which we believe to be in the best interest of the shareholders of both Mannesmann and Vodafone AirTouch," Gent added.
Vodafone's bid is 18 percent above its initial unsolicited offer of 203 euros per Mannesmann share, which the German group rejected on Sunday. That bid followed weeks of speculation that a Vodafone move on Mannesmann was imminent. See full story.
Last month, Mannesmann agreed to take over Orange (ORNGY: news, msgs) in a $33 billion deal (see story), thereby muscling its way into Vodafone's home market. Mannesmann and Vodafone have European joint ventures in Italy, France and Germany.
Successful hostile bid is unprecedented in Germany
West LB Panmure's Tysoe said the fact that Mannesmann shareholders would hold 47.2 percent of the combined group gives them the chance to keep a significant stake in the "pre-eminent" global mobile phone operator. And although some analysts say the fact that Vodafone hasn't offered any cash is a potential Achilles' heel, Tysoe argues that this shows the bid is a true merger offer, rather than a takeover.
Also, Mannesmann's purchase of Orange is set to be complete on Monday. That means Mannesmann will then be roughly 65 percent owned by non-German institutional investors, who may well be more sympathetic to the British group's cause.
However, some observers in Germany don't think this Vodafone deal has a chance. "Vodafone shares are not enough. It's a defensive move by Vodafone which will become a junior partner to Mannesmann in the next couple of years," said Michael Schatzchneider, Frankfurt-based telecom analyst at BHF Bank.
Mannesmann has controlling stakes in Vodafone's two biggest continental European assets, Mobilfunk D2 in Germany and Omnitel in Italy. The two are also partners in the French market through SFR/Cegetel.
Mannesmann's defensive options
Mannesmann has several lines of defence under German law. Through a bylaw that was introduced in the 1970s, no shareholder, no matter how big his or her stake, can hold more than 5 percent of voting rights. However, this law is scheduled to be repealed by June 2000 and any deal may take at least that long to go through. German law also states that a bidding company needs to gain 75 percent of the voting rights of its takeover target to get management control.
There has also been speculation in the press that Mannesmann could bid for KPN NV (KPN: news, msgs) the Dutch telecom group. Any such bid would create another hurdle for Vodafone to clear -- and it's already likely to sell Orange to pacify U.K. regulators, analysts said.
Some observers anticipate a "white knight" bid to rescue Mannesmann may come from British Telecommunications PLC (BTY: news, msgs), or a U.S. company seeking to boost its European presence. |
