New York Times February 4, 2000 VOD Mannesmann (2 articles)
>> EVEN AS DEALS FLY, WIRELESS REMAINS A TOWER OF BABEL
By Seth Schiesel
hough Vodafone AirTouch of Britain's $183 billion deal to acquire Mannesmann of Germany would be the biggest takeover in corporate history, reactions to the deal yesterday from telecommunications analysts and wireless telephone executives in the United States were characterized mostly by profound ennui.
"Nothing more than the obvious," one Wall Street analyst said.
"This is pretty straightforward, isn't it?" an executive said.
"Not a huge impact globally," another analyst said.
But the collective yawns may have only underscored how quickly the communications industry is changing and how important the wireless sector -- once a backwater -- has become. Multibillion-dollar wireless deals have come so fast and furious over the last year that yesterday's agreement seemed only to fit into the pattern in what is perhaps the fastest-growing segment of the global telecommunications industry.
It was not long ago that wireless phones were seen as the toys of globe-trotting power brokers and celebrities -- and were priced to match. Now, about 85 million people use them in the United States alone.
That explosive growth has compelled communications companies on both sides of the Atlantic to bet billions of their shareholders' dollars on the vision of seamless global, or at least continental, wireless service. More billions are being wagered that soon, wireless Internet service will become as common as annoying cell-phone users next to you at lunch.
In recent years, Sprint, the big long-distance carrier; U S West, the Bell local phone company; and Tele-Communications Inc., the big cable television company, agreed to be acquired in separate transactions for a total of about $176 billion.
The fact that a wireless phone company in Germany could be seen to be worth more than all three of those companies combined speaks for itself. But until wireless subscribers around the world can speak with each other without roaming problems and while traveling, the industry must resolve some thorny technical and financial questions.
Wireless is still a Tower of Babel. While almost all wireless operators in Europe and the Middle East use a common digital technology, known as G.S.M., for global system for mobile communications, adoption of G.S.M. has been far from global.
Most important, G.S.M. is generally used in the United States by only a handful of smaller carriers, though some big communications companies including BellSouth use G.S.M. in parts of their networks. More prominent in the United States are other, incompatible digital technologies known as T.D.M.A., for time- division multiple access (used by AT&T, for instance), and C.D.M.A., for code-division multiple access (used by Sprint and Bell Atlantic, among others).
The International Telecommunication Union, a United Nations standards-setting organization, has been trying for years to encourage wireless operators from around the globe to agree on a common global standard so that companies can upgrade their networks in the future. But much of that effort has stalled because of political wrangling among communications equipment companies in different countries.
"The initial ideal was global roaming with one standard," said John M. Bensche, a wireless analyst for Lehman Brothers. "The initial ideal of the I.T.U. is not going to be realized."
At least not yet. Andrew Sukawaty, chief executive of Sprint's wireless operation, Sprint PCS, which provided the main reason for MCI WorldCom Inc. to agree to acquire Sprint last year, says he expects global roaming in three or four years. But the technical issues will not be solved through mergers.
"This doesn't really bring us one step closer to resolving the worldwide issue because that's a standards issue," he said in an interview yesterday.
There are also important business issues to be resolved. When wireless customers "roam" from their home network and onto the system of another carrier, they face higher per-minute rates and the home carrier's profit margins can suffer for having to pay the owner of the host system in the roaming area for network use.
To offer rate plans that make widespread roaming financially attractive, wireless carriers must either own far-flung networks themselves or strike special partnerships with other carriers to charge one another low roaming fees.
In that sense, an acquisition of Mannesmann by Vodafone would ease roaming between Britain and Germany for customers of those companies, but it would still leave major parts of Europe out of the equation, even though the two companies have minority investments in many other nations.
"While they have unified technology, from a business side, offering pan-European service is not compelling for the carriers," Mr. Sukawaty said. "This is just a start."
Vodafone's agreement to merge its United States operations into a joint venture with Bell Atlantic and the GTE Corporation could speed the advent of seamless trans-Atlantic roaming. But those companies' customers in the United States still generally use wireless phones that are technically incompatible with European networks.
Nonetheless, the scramble for scale will almost surely continue in the wireless business as carriers try not only to offer their customers broader networks but also to seek the financial advantages that accrue to sheer size.
"The wireless business was always about coverage and footprint," said Steven R. Yanis, an analyst for Banc of America Securities. "That originally meant, 'Do you have your city covered?' then 'Do you have your region covered?' and then, 'Do you have your nation?' and now it's, 'Do you have the globe covered?' " <<
>>$183 BILLION DEAL IN EUROPE TO JOIN 2 WIRELESS GIANTS
DÜSSELDORF, Germany, Feb. 3 - By Edmund L. Andrews and Andrew Ross Sorkin
Two of the world's leading companies in wireless communications agreed today to combine in a $183 billion takeover deal, the largest ever.
In a stunning end to the kind of hostile takeover attempt once considered unthinkable in Europe, Vodafone AirTouch of Britain negotiated the acquisition of Mannesmann of Germany. The all-stock transaction shattered the previous record for a takeover deal, America Online's $165 billion purchase of Time Warner announced less than three weeks ago.
If consummated, the takeover will vastly expand the reach of Vodafone, which already is the world's biggest wireless telephone company, giving it dominance in the European market. Vodafone already has a major presence in the United States, Asia and Africa.
But the Vodafone-Mannesmann deal is perhaps more important as a watershed in European corporate behavior and the export to Europe of bare-knuckled takeover tactics first honed on Wall Street.
Never before has a European company carried off a hostile takeover on such a scale: cross-border, cross-cultural and paid for with shares in a company that was almost unknown outside of Britain 10 years ago.
The exact terms of Vodafone's acquisition of Mannesmann are still subject to approval by the German conglomerate's supervisory board -- the equivalent of a board of directors -- which is expected to ratify the agreement on Friday.
The deal came just four days before the expiration of Vodafone's takeover offer to holders of Mannesmann stock. Mannesmann's management had called the offer unwanted, unfriendly and too low.
Although it was nominally called a "friendly" merger today, Klaus Esser, the chief executive of Mannesmann, capitulated only when it became obvious that a majority of his shareholders were about to sell.
"The shareholders clearly think that this company, Mannesmann, a great company, would be better together with Vodafone AirTouch," Christopher Gent, Vodafone's chief executive, told reporters in Düsseldorf, where Mannesmann is based.
It remained unclear what the combined company would be called. But the deal would bring together two businesses with vastly different backgrounds. Mannesmann, founded more than a century ago as a maker of steel pipe, has evolved into technology-driven leader that specializes in communications. Vodafone, by contrast, was born 18 years ago as Britain's first cellular phone company, and that has been its only business ever since.
Together, Vodafone and Mannesmann would have 42.4 million subscribers. NTT DoCoMo of Japan is a distant No. 2 with 26.7 million, and Telecom Italia No. 3 with 17.8 million, according to estimates by the Lehman Brothers investment bank.
Mr. Esser, who had been voluble in his opposition to Vodafone's takeover designs and had been expected to resign, said he would continue to work for the combined company. He will become a nonexecutive chairman and keep a seat on the board.
Mannesmann shareholders will control 49.5 percent of the combined company and will get 58.96 Vodafone shares for each share of the German company that they own, up from the original 53.7 offered. Based on Vodafone's closing share price Wednesday of £3.855, or $6.21, the day before word of the deal got out, the total value is about $366.14 a share, or $183 billion.
If Vodafone shares hold their value, the agreement will be a bonanza for shareholders in Mannesmann, the most widely owned foreign stock in the United States. The takeover price for Mannesmann shares is more than double what they cost before the takeover battle began.
The arrangement has to be approved by the European Commission, which is expected to issue a preliminary decision on Feb. 17. But the deal is a bitter defeat for Mr. Esser, who had passionately fought to preserve his company's independence, though he insisted tonight that the situation was the best possible outcome.
"It's not a change of opinion," he told reporters.
But a slight discomfort was evident between the two men as they presented their agreement tonight. Despite a show of collegiality, they awkwardly shook hands for just a moment. After a bit of prodding by photographers, they were cajoled into shaking hands again.
Despite Mr. Esser's public nonchalance, the takeover is also a shock to Mannesmann, an old-line industrial and engineering conglomerate that had transformed itself into the biggest provider of wireless communications in Europe.
Mr. Gent also outmaneuvered Mr. Esser on the chessboard of Europe's wireless industry, which is based on a handful of immensely valuable national licenses in each country.
Mannesmann owns networks in Germany, Italy and Britain. Vodafone owns Britain's second largest network and scores of other stakes around Europe and elsewhere.
Mr. Gent's biggest victory came last Sunday, when Vodafone managed to steal one of Mannesmann's longtime allies -- Vivendi, a French media conglomerate. That move derailed Mr. Esser's desperate attempt to negotiate a merger with Vivendi, which would have given him control of a major French network and greatly strengthened his position with shareholders.
But Mr. Gent cut his own deal with Vivendi's chairman, Jean-Marie Messier, by forming a joint venture in Internet services. That deal convinced wavering shareholders that Mr. Esser had lost the upper hand, even with his allies, and shareholders began betting on a takeover.
Executives from both companies began to work in earnest together at the start of the week. The companies reached a basic agreement early this morning. Negotiations continued for most of today until the announcement was made late tonight.
The combined company will control wireless networks in Europe's three biggest markets -- Britain, Germany and Italy -- along with a 45 percent stake in an AirTouch-Bell Atlantic venture and holdings in more than 30 other countries.
Though Europe has had a surge of big hostile takeovers in the last two years, the takeover of Mannesmann makes history on several fronts besides sheer size.
For one, the only successful European takeovers have been between competitors within a single nation.
The battle for Mannesmann is also one of the first real battles for the entire European market, one in which both the combatants recognized that the economic integration of Europe and the adoption of a single currency in 11 countries made it crucial to overcome boundaries.
The battle also is one of the first cases in which national political leaders did not try to interfere to protect an important domestic company.
When three of France's biggest banks plunged into a heated takeover battle last year, the battle was largely sanctioned and guided by the Ministry of Finance, which wanted to consolidate the nation's banks and keep out foreign bidders.
The same was true when TotalFina, the French-Belgian oil company, began a successful hostile takeover of Elf Aquitaine.
Likewise, Italian political leaders opposed the proposed merger between Deutsche Telekom and Telecom Italia in favor of a hostile bid by Olivetti of Italy.
In Germany, the reaction was different. Despite the angry talk about the dangers of hostile takeovers, the German government stayed out of the fight.
That reflected a widespread view among German business executives that it was far more dangerous to interfere with a legitimate if hostile takeover attempt and jeopardize the ability of German companies to buy up foreign companies.
As a result, Mr. Esser and Mr. Gent waged their battle almost entirely through direct appeals to shareholders themselves.
The conflict began in January 1999 when Vodafone acquired AirTouch of the United States, a minority partner in all of Mannesmann's communication ventures. But it deepened when Mannesmann invaded Vodafone's home territory by buying the British mobile phone network Orange for $33 billion in October.
Faced with Mannesmann's direct attack in Britain, Mr. Gent decided that Vodafone could not remain a real player unless it took over its partner-turned-rival.
Word of the deal weakened Vodafone's share price. In London trading, shares ended at 368.5 pence, down 17. In Frankfurt, Mannesmann shares added 0.5 euro to 325.50 euros.
Both companies employed armies of investment bankers to advise them. Vodafone's lead adviser was Goldman Sachs, which will earn about $75 million, analysts estimate. Vodafone is also advised by Warburg Dillon Read, which is expected to take home $50 million.
Mannesmann's advisers are Merrill Lynch, J. P. Morgan, Deutsche Bank and Morgan Stanley Dean Witter. It is unclear how much Mannesmann's advisers stand to earn. <<
- Eric - |
