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Mannesmann Rejects Vodafone Bid

November 15, 1999

LONDON (AP) _ Speculation mounted today that Vodafone AirTouch PLC was preparing to launch a hostile bid for Germany’s Mannesmann AG, paving the way for what could become the largest corporate takeover battle in history.

Industry analysts said a takeover attempt was almost inevitable after Mannesmann rejected late Sunday an unsolicited $77 billion offer from Vodafone, the world’s No. 1 mobile phone business.

Meanwhile, speculation grew that a U.S. heavyweight such as Bell Atlantic Corp. or SBC Communications might make a bid of its own for the German telecommunications and engineering group.

At stake is a dominant role in Europe’s burgeoning cellular communications business, a market that some analysts predict will double over the next five years to $100 billion.

Vodafone offered few clues to its intentions. In a brief statement filed Monday with the London Stock Exchange, it said that its board noted Mannesmann’s decision ``with regret.″

Vodafone officials declined to return several calls seeking further comment. However, the company was widely expected to announce a hostile bid as early as Tuesday, when it is due to release its interim financial results.

U.S. investment bank Lehman Brothers said Monday that it ``is now virtually imperative″ for Vodafone to make a hostile bid for Mannesmann, in order to keep the initiative in its effort to build a broader customer base in continental Europe.

Dwayne Taylor of London-based Robert Fleming Securities, agreed that a bid was imminent. ``The next step for them has to be to go for the company. The surprise would be if they don’t make a hostile bid.″

Vodafone is the largest mobile service provider in Britain, and Mannesmann has a strong presence in Germany and Italy. But while Vodafone covets Mannesmann’s continental network, the German company, which has both fixed-line and wireless operations, has less to gain from tying up with Vodafone.

Vodafone’s friendly bid of 43.7 Vodafone shares for each share in the German company valued Mannesmann at $77 billion. It amounted to a 10 percent premium over Friday’s share price.

Complicating matters is Mannesmann’s pending $33 billion acquisition of Orange PLC, Britain’s fourth-largest mobile phone carrier. Including Orange in the deal could push it up to $110 billion; however, Vodafone would almost certainly have to sell off Orange because British law prohibits a company from holding more than one mobile phone license.

If a Vodafone bid is crafted that successfully incorporates both telecommunication companies, it could surpass MCI WorldCom Inc.’s record $115 billion purchase last month of Sprint Corp. That deal that still awaits approval by U.S. regulators.

Mannesmann’s purchase of Orange also requires the approval of the British firm’s shareholders.

Vodafone stock traded lower Monday at 292.50 pence ($4.71) per share, down 1 percent from Friday’s close, on the London Stock Exchange. Mannesmann shares jumped 10 percent in Frankfurt to close at 202.98 euros ($209.47).

On the New York Stock Exchange, Vodafone’s American depositary receipts were down 6 1/4 cents at $47.43 3/4 by midafternoon. The foreign shares trade at a 10 to 1 ratio from the ordinary shares in London.

Analysts said Vodafone would likely have to sweeten its all-stock offer with cash to win over Mannesmann shareholders. More important, they said, Vodafone may need to boost the total value of its bid to 250 euros ($258) per share, a 25 percent premium above the current bid.

Analysts said Vodafone was also wary that an American company might intervene with a rival bid for Mannesmann.

``Vodafone AirTouch might be feeling rushed to bid for Mannesmann now, given that there might be some U.S. operators interested in making a bid for Mannesmann soon after the takeover for Orange is completed,″ said John Karidis, an analyst in London with Commerzbank.

Potential U.S. predators reportedly eyeing Vodafone’s scramble for Mannesmann include SBC, which already has a minority stake in French, Swiss and Belgian phone businesses, and Bell Atlantic, which owns a majority stake in a U.S. wireless network venture with Vodafone.

Spokesmen for both Bell Atlantic and SBC declined to comment.

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