Professional Documents
Culture Documents
VODAFONE
ON A HOSTILE TAKEOVER
December 2000
Martin Marinschek, Student ID 9803246
Abstract
This paper summarizes the proceedings of the largest merger in the history of
the telecommunication business, including the two players Vodafone and
Mannesmann.
Analyzing the history of the two companies, the reasons for the merger, the
merger itself and the outcome of the takeover, as well as the impacts on society,
economy and legislative are the major concerns.
Along the way, a short description of the acting persons shall be given, and
the environment of the merger shall be shown as appropriate for a complete
description.
Table Of Contents
The foundations of Mannesmann and its history are the contents of this
chapter.
Finally, in 1990, the company bought the first licence for a private mobile
telecommunications network in Germany, called its network D2 and rapidly grew to
be the leader of the mobile communication business in Germany. (Mannesmann.
2000. “An Outline of Mannesmann – History of the Mannesmann Group”.)
The company was still active in other sectors as well, but these sectors started
to be less important over time, the tube production sector was highly deficitary, the
still very well running engineering part was not the only decisive part of the annual
turnovers anymore as in 1999 the sales of telecommunication products were more
than a third of the complete turnover. (Mannesmann. 2000. “Mannesmann at a
Glance”.)
The following history is taken from the company’s history that can be read in
Vodafone, 2000, “Company History”.
In 1982, Racal Radio Group took part in the bid for the first private mobile
telecommunications license in the UK. It succeeded, and rapidly developed its
customer base. The telecommunication part of Racal’s business was soon to be
called Vodafone.
In 1991, Racal and Vodafone demerged, and Vodafone emerged as a separate
legal entity, then with a customer base of 697,000.
The following years helped Vodafone to grow into an international company, a
global player, with agreements in most of the European countries and in other parts
of the world as well (especially Hong Kong, Netherlands, Germany and France).
Finally the last step to be an important global player was set: The merger with
Airtouch provided Vodafone with the necessary access to the US market to call itself
a real international company.
This merger, as said before, was the last step to a truly international
company, set by Vodafone in 1999 and leaving the world unsure about the future of
the emerging telecom giant.
“…It sounds fanciful. A virtually unknown British company beats two US giants
in a battle for an American leader in one of the world's fastest growing businesses to
pull off Europe's largest transatlantic takeover. But it's true. Vodafone Group PLC
outbid Bell Atlantic and scared off MCI-WorldCom to snare AirTouch
Communications, the San Francisco-based cellular phone services company, in a $62
Mannesmann shares were worth 143 € at the time of the proposed merger
between Mannesmann and Vodafone, with a volume of 494 mio. shares on the
market which sums up to a market capitalization of around 70 bio. €. The customer
base of Mannesmann was around 36 mio. at the same time. (Mannesmann. 2000.
“Report of the Executive Board”. and Vodafone. 2000. “Creating Europes Global
Telecoms Leader”.)
The following chart illustrates the valuation of Mannesmann until the
November of 1999, the sharp incline in valuation due to the talkover offer by
Vodafone (the peek in February is exactly the takeover date). The sharp decline of
the stock price thereafter is not relevant: There are 2% of the Mannesmann shares
left in the market, they are still being traded, but with a lot smaller liquidity and they
gradually decrease in price.
Fig. 1: Stock price of Mannesmann ADRs on the NASDAQ for the last two years. Source:
www.TheStreet.com, Quotes & Charts for symbol MNNSY
For Vodafone, the number of customers was at 30 mio. (if linear interpolation
between the customer base of 1999 and 2000 is used) and the market capitalization
was at more than 150 bio. €. More than two times as much as Mannesmann, at the
Fig. 2: Stock price of Vodafone ADRs on the NYSE for the last two years. Source:
www.TheStreet.com, Quotes & Charts for symbol VOD
If we look at the share price of two years from January 1997 to December
1999, we will see that a difference between the companies is eminent. At some time
in history, the valuation must have gone different ways, and the outcome is a
Vodafone stock valuation that was (at the point of the merger talks) far higher than
Mannesmanns.
Fig. 4: Comparison of the stock prices of Mannesmann and Vodafone over the last three
years. Source: www.vodafone-update.com, “Creating Europe’s Global Telecoms Leader”
And now some words to the human players, who they are and what they
stood for in the growing telecommunication business and in respect to the merger.
When the idea emerged is not clear, but on October 22nd Vodafone hired
Goldman Sachs and Warburg Dillon Read to help with the possible options regarding
Mannesmann, and Vodafone moved quickly.
It was clear that the merger between Mannesmann and Orange could not be
broken, it was a done deal, so the only possibility left open for Vodafone was to bid
for Mannesmann itself.
Political interest in the case would be huge, that the company knew, but it set
all reservations aside and bid on November 14th: a friendly takeover, valuing
Mannesmann at 204 € a share.
Esser and his company declined, and the hostile bid was launched on
November 19th. An all stock offer, valuing the Mannesmann stock at 240 € a share.
(Walker M. 2000. “The bid that couldn't fail“.)
Goldman, Sachs & Co. played an ambivalent role in the battle: first helping to
sell Orange plc. from Hutchinson Whampoa to Mannesmann and then helping
Vodafone to takeover Mannesmann did actually raise some questions about possible
conflicts of interest. Very early in the process of the takeover, Mannesmann filed a
lawsuit with Goldman on this issue, but due to problems with the provided evidence
the lawsuit was cancelled pretty soon. (Reed S. 2000. “The Wizards of Telecom”.)
As the takeover of Orange was still not completed, Mannesmann was not able
to give out all the information and take all steps that should have been taken at this
time. Esser, who himself had lead the takeover agreements with Orange, had slept
14 hours in 9 days and had no time to act appropriate.
Here the different styles of leading the company showed up: Esser, a leader
who was not able to delegate much of his competence had to take all steps himself,
Vodafone leader Gent had a staff of well trained people who he trusted much and
had given them far reaching decision making competence. (Walker M. 2000. “The bid
that couldn't fail“.)
Finally, the most potent escape plan for Mannesmann was triggered: to find a
white knight which would make it impossible for Vodafone to take over
Mannesmann, due to the size of the company thereafter.
The search for a possible white knight is short: Vivendi, a France telecom
business offers a lot of interesting opportunities, and in the week before year’s end
the talks begin.
Vivendi played hardball in the talks, though, and so Mannesmann executives
had to pose themselves the question if the takeover of Vivendi was economically
justified or just a plain act of defense.
Jean Paul Messier, CEO of Vivendi, had been leading talks with both
Mannesmann and Vodafone about a strategic alliance before the bid of Vodafone for
Mannesmann. He is now the person who might decide about success of the two
players, and knows that he can make something of that fact.
He is in talks with both parties still: while he talks with Mannesmann about a
possible merger under terms in which Vivendi would get a third of the combined
entity and the headquarters would be in Paris and Duesseldorf.
Vivendi and Mannesmann were close: Vivendi wanted 36% of the combined
corporation, Mannesmann wanted to offer 34% to the French company. A difference
which should have been possible to overcome, but the history proved different.
The market reacts positive to the Vivendi – Vodafone deal, and this reaction
finally breaks the resistance of Mannesmann. Klaus Esser, who always believed that
if his shareholders would give him another year, Mannesmann could easily outperfom
Vodafone and at the end of the year a merger would possibly be a merger in favor of
Mannesmann, had to retreat. All he could do in the end was make the deal as
positive for his shareholders as possible.
Says Walker: “On February 2, with the hostile bid worth nearly Euro 350 per
Mannesmann share, Esser picked up the phone and asked Gent to come to
Dusseldorf that night. Over the Rhine, the white Bag was flying.” (Walker M. 2000.
“The bid that couldn't fail“.)
It has happened (Anonymous. 2000. “Linklaters helps Vodafone and
Mannesmann finally tie the knot”.): On February 3rd 2000 the companys agree on the
takeover, Mannesmanns’ shareholders receive 49.5% of the combined entity.
Vodafone wants the name Vodafone on its products: forget about the name
Mannesmann. Like Coca-Cola or Mars, Vodafone should be known globally, that is
the intention of the companies management. (Rosier B., Poppy B. 2000. “Vodafone
recruits senior Coke chief”.)
“…Thomas Geitner, Vodafone Group's Executive Board Director responsible for
global branding, said: "The appointment of our first Pan European media planning
agency is part of our strategy to establish a strong global brand and position
ourselves as the world's leading mobile multimedia company….” (Vodafone. 2000.
“Vodafone appoints Pan European Media Planning Agency”.)
In the proceedings, the name Mannesmann, that was not a very attractive
brand name anyway, as it did not sound progressive and active enough, will probably
vanish.
A merger like the one described in this paper has – caused by the volume of
the transactions – of course impacts on the economy of a society, furthermore, social
questions and legislative questions arise alike.
Disclosure Practices, political intervention and investor relations are the main
point were critical voices are emerging regarding the Continental European business
practice in general and the German one particularly in comparison to the US.
It remains fact that more than 90% of US investors agree on the points
above. To lure money into the Continental European market the legislative has to
act. (Franco T. 2000. “News Feature: Politics Fails to Taint German Equities”.)
Additionally there is to say that the takeover codes in Continental Europe are
not very sophisticated. In Europe, it is possible to take over a company without
officially bidding for it like it happened with LVMH, a luxury-goods firm, and France's
Pinault group taking a third each of Gucci. In Italy, Olivetti made a bid for Telekom
Italia without including minority stake holders in the process: they were left out, they
did not receive any offers. (Anonymous. 1999. “Finance and economics: Barriers to
entry”.)
“…All of these practices would have been impossible under Britain's long-
established non-statutory takeover code. It has clear rules about the level of
shareholdings above which a general offer must be made for all of a company's
shares (30%), and above which a bidder has control (50%). Strict rules about
trading in the bidder's or target's shares prevent the creation of false markets. And
Two winners are clear: Chris Gent and Klaus Esser, CEO and former CEO of
Vodafone and Mannesmann.
Chris Gent receives 5 mio. British pounds in cash and another 5 mio. in stock
for his successful completion of the merger (Anonymous. 2000. “Leaders: Vodafone's
folly”.), Klaus Esser 60 mio. German marks as a replacement for the loss of power
and influence (Anonymous. 2000. “IG Metall kritisiert 60-Millionen-Mark-Prämie für
Mannesmann-Chef Klaus Esser”.).
Questionable remains the height of these sums, especially as the benefits of
this merger have not completely been shown until now.