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Vodafone Makes Bid for Mannesmann

November 19, 1999

LONDON (AP) _ Vodafone AirTouch PLC made history Friday with a $128 billion hostile takeover bid for the German engineering and telecommunications group Mannesmann AG.

The offer is the biggest ever, topping MCI WorldCom Inc.’s record $115 billion friendly bid for Sprint Corp., an acquisition that still awaits approval by U.S. regulators.

The bid has already been rejected by Mannesmann’s supervisory board, setting the stage for a massive battle for the hearts of its shareholders.

But Vodafone faces wall of mistrust and resentment in Germany, where hostile takeovers are rare and corporate bylaws discourage predatory behavior. It also must appease anti-monopoly watchdogs at European Union headquarters in Brussels.

However, global competition and technological advances have transformed Europe’s once-staid telecommunications industry into one of the region’s most dynamic sectors.

If Vodafone can win over Mannesmann’s shareholders, industry analysts foresee that little else will stand in its way.

Vodafone, the world’s No. 1 mobile phone business, is offering 53.7 of its own shares for each Mannesmann share. The offer was 18 percent higher than Vodafone’s initial bid of 203 euros ($211) per share, which was rebuffed by Mannesmann on Sunday.

``As a result, we have decided to make an offer directly to Mannesmann’s shareholders,″ Vodafone chief executive Chris Gent told a news conference.

Both Mannesmann and Vodafone are vying for a dominant role in Europe’s fast-growing mobile communications industry, a market that some analysts believe will double in value to $100 billion over the next five years.

Vodafone AirTouch is itself the product of a $56 billion buyout of AirTouch Communications, a U.S. firm, by Vodafone of Britain.

John Karidis, an analyst in London at the German bank Commerzbank, said more telecommunications mergers are inevitable.

``Business customers are consolidating on a Europe-wide scale and therefore require telecoms companies to service them on a Europe-wide scale,″ he said.

Under the proposed deal, Vodafone also would win control of Orange PLC, the British mobile telecommunications operator that Mannesmann recently bought for $35.4 billion.

Meeting in Dusseldorf, Mannesmann’s supervisory board later rejected Vodafone’s latest offer, as expected, because ``the offer is weak and extraordinarily risky,″ said Mannesmann chairman Klaus Esser.

Esser criticized the bid for lacking a cash component and noted that its value depended on Vodafone’s fluctuating share price.

Vodafone shares slipped 3 percent to close Friday at 275.50 pence ($4.46) per share. Its foreign shares in the United States were trading at $45.43 3/4, down 62 1/2 cents on the New York Stock Exchange.

Mannesmann stock plunged 7 percent in Frankfurt, finishing at 193.10 euros ($199.07).

Mannesmann’s supervisory board will make a final decision about the offer on Nov. 28, Esser said.

Vodafone’s stalking of Mannesmann has triggered an outcry in Germany, with politicians and labor leaders expressing concern that the British-American company would slash jobs if it succeeds in taking over Mannesmann.

But Norbert Wunner, a specialist in German economic policy at the London School of Economics, predicted that Germany’s traditional aversion to hostile takeovers wouldn’t apply in the country’s telecommunications sector, which has become used to change and consolidation.

Gent sought to defuse potential opposition in Germany, saying a takeover of Mannesmann would result in no jobs cuts or ``asset-stripping.″

Although Vodafone would sell off its target’s engineering and industrial businesses, he stressed that the German group already was planning to do that anyway.

Gent said Vodafone has talked already with EU officials to clear the way for regulatory approval of the proposed takeover.

``We’re not eliminating competitors,″ he argued.

What Vodafone is doing, however, is shattering a successful partnership.

Together with Mannesmann, Vodafone has investments in Germany, France and Italy. But their warm relations began to chill when Mannesmann made a friendly bid last month for Orange, Britain’s fourth-largest cellular company, on what Vodafone considered to be its own home turf.

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