Vodafone Mannessmann merger is one of the biggest merger ever happened. Vodafone Group Plc is a mobile network operator headquartered in Newbury, Berkshire, England, UK. It is the largest mobile telecommunications network company in the world by turnover and has a market value of about £84.7 billion (July 2007). Vodafone currently has equity interests in 27 countries and Partner Networks (networks in which it has no equity stake) in a further 40 countries. At 31 January 2007 Vodafone had 200 million proportionate customers in 27 markets across 5 continents. The company is involved in the operation of mobile telecommunication networks and the provision of related telecommunication services. The company’s principal business is the operation of the cellular radio networks.
Mannesmann AG (“Mannesmann”) is a German-based engineering and telecommunications company. Its’ core activities in the telecommunications sector relate to mobile and fixed line telephony. It has interests in joint ventures in France, and Austria and owns businesses in Germany, Italy, the United Kingdom and the USA.
Initial Discussions:
In the year 1999 telecom industry was opening up for competition. It was forecasted that telecoms revenue will rise from about £650bn in 1996 to about £1.2trillion in 2002. At the same time as technology was making rapid progress, markets everywhere are opening up to competition. The spread opened up many more opportunities for large and small companies and a search by big players for company alliances worldwide to compete with newcomers. Analysts had expected the UK's leading mobile phone operator, Vodafone, to bid for Mannesmann, as merger fever spread. At that time German engineering giant Mannesmann was hoping to cash in on the expanding markets by setting up its telecoms subsidiary as a separate company. Vodafone itself won a transatlantic bidding war in January to snap up US firm AirTouch Communications for £37bn, the biggest deal struck by a UK firm, creating Vodafone Airtouch. Vodafone Chief Executive Chris Gent said at the time that the intention was to create "a Microsoft of mobile phones". The new company serves more than 24 million mobile customers on four continents. A takeover of Mannesmann would give Vodafone control of mobile operations in Germany, France and Italy and strengthen its position as the world's largest mobile phone company. According to a report in Wall street journal Vodafone AirTouch was moving ahead with plans to mount a hostile bid for German telecoms and engineering group Mannesmann. The deal was expected to value the pair together at more than $100bn.
Earlier, Vodafone Airtouch was said to be planning a joint bid with France Telecom for Mannesmann. The speculation followed Mannesmann's £19bn bid for UK mobile telecom company, Orange. Vodafone Airtouch has long been a suitor of Mannesmann and the German company hoped that buying Orange would place it outside of Vodafone Airtouch's reach. This hope was based on the belief that UK competition rules would not allow Vodafone Airtouch to own two mobile operations. Analysts said the logic of a joint Vodafone/France Telecom deal is strong. France Telecom would buy Orange, while Vodafone would buy Mannesmann's other assets, in particular its German and Italian mobile operations.
Analysts View:
“A bid would be unwelcome and, given Mannesmann's company structure, it may be difficult to launch a hostile takeover.” “Mannesmann company rules limit individual shareholders' voting rights to a maximum 5% tranche, even if they hold a larger block of shares” "Because of Mannesmann's structure, it is very difficult to launch a hostile takeover. So one will have to wait for a comment from the companies involved to see whether a friendly agreement would be an option" “Mannesmann is too proud to accept a takeover." “Contested takeovers are rare in Germany.” “if Mannesmann bought Orange it would put it out of the price range of potential buyers, such as Vodafone Airtouch.” “Vodafone would also face difficulties in mounting a hostile bid in Germany, where competition law is tough on such deals.”
Announcement:
In Nov 1999 Vodafone offered to exchange 43.7 of its shares for each Mannesmann share with no cash added. This was estimated to be worth up to £65bn, was rejected by the German company
Then Vodafone initiated a hostile takeover and proposed a stock swap whereby each Mannesmann share would be exchanged for 53.7 Vodafone shares. Vodafone would issue 27.8 billion new shares and, with 517.9 million Mannesmann shares outstanding, Mannesmann would then own 47.2% of the combined entity. The Vodafone offer had been estimated to be worth up to £75bn. Vodafone had been tipped to make an offer for Mannesmann ever since the German company announced a deal to buy UK Company Orange. The German telecommunications giant Mannesmann rejected the takeover bid, Mannesmann's board said the offer did not contain a cash offer and was unattractive to shareholders. According to them offer was “wholly inadequate”. There was no immediate comment from Vodafone. The stock market was on tenterhooks, awaiting news of the expected move when Vodafone releases its half-year financial results. Vodafone may have to lift its offer for Mannesmann to win shareholders over in what would be the world's biggest ever hostile takeover battle. Investors were worried about the prospect of Vodafone paying over the odds and shares in the company slipped 3.75p to 292.5p on Monday. Shares in Mannesmann rose 17.68 euros (£11.24) to 202.98 euros (£129) on the German stock market.
On 19 Nov 1999, Vodafone launched a £79bn (124bn euro) hostile takeover bid for German mobile phone company Mannesmann followed by Mannesmann's rejection of a friendly merger offer. Which is set to be the world's biggest ever contested takeover battle till date.
Valuation:
Value offered per share: €240
No. of Shares Outstanding: 0.5179 billion Total value of the company: €240 X 0.5179 billion ≈ €124 b
If successful this would result in Mannesmann shareholders owning 47% of the combined group. The offer represented a 20% increase on Vodafone's initial bid. This estimate excludes the value of Orange PLC, since Mannesmann’s offer to Orange was not yet bounded.
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