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Mergers Benefit German Execs Little

February 7, 2000

FRANKFURT, Germany (AP) _ Mannesmann AG chief executive Klaus Esser managed to seal a spectacular purchase price for his company, forcing Vodafone Airtouch PLC to double its original offer to a record $180 billion.

But despite all the work Esser did in conducting the grueling negotiations over the past several weeks, he will be leaving with what likely will be a very modest severance package, underscoring just how little German executives have to gain when merger offers come knocking at the door.

In contrast to the American model, where executives bail from their companies with a golden parachute of stock options and cash bonuses, German executives are hemmed in by a corporate culture that typically scoffs at stock options and values the prestige of a top position more than the paycheck.

``That’s the curse of being a German manager,″ said Rolf Gerner, an acquisition analyst with Donaldson, Lufkin and Jenrette in Frankfurt.

``A person in Mr. Esser’s position is clearly driven by motivations of wanting to be independent and being seen as a smart manager, but not as someone taking home 200,000 Deutsch marks ($100,000) or more,″ he said. ``It’s less money-oriented than the Anglo-Saxon world.″

The breakthrough deal was history’s largest corporate merger and created the world’s fourth-most valuable company in terms of market value. By holding out for nearly three months, Esser not only squeezed twice as much money out of Vodafone as it initially offered, he managed to guarantee Mannesmann shareholders a 49.5 percent stake in the merged company _ a sweetened offer up from the original 47.2 percent.

``I hope the Mannesmann board looks after him because he has done a wonderful job for shareholders,″ Vodafone chief executive Chris Gent said Friday after clinching the deal.

In the freewheeling world of American-style capitalism, looking after management often means loading them with stock options _ an offer to buy shares at a fixed price.

If the company’s stock rises, they can buy the shares and then sell them, netting a quick profit.

When Vodafone bought out U.S.-based AirTouch Communications last year, AirTouch chief Sam Ginn stepped out of the picture with roughly $150 million in stock options, according to Vodafone spokesman Mike Caldwell. And even Vodafone head Chris Gent has roughly 2.5 million stock options in Vodafone he can cash in for a soft landing worth up to $2.8 million.

Under the merger of American pharmaceutical companies Pfizer Inc. and Warner-Lambert Co., announced Monday, Warner-Lambert chief executive, Lodewijk J.R. de Vink, will leave the company with three years’ salary and bonus, plus stock options currently worth about $245 million.

But Esser won’t be getting anything like that when he departs in five months. Esser does not have any options, and Mannesmann would not comment on whether he owned any shares. An earlier appeal by the CEO to link executive bonuses to stock price was turned down, and whatever options might be worked into his contract are thought by analysts to be meager.

In Germany, stock options are relatively unheard of _ and even discouraged for fear they would tempt managers to sell out the company’s long-term health for short-term payoffs.

``It’s a philosophical debate over whether it entices managers to hold on and try to build the company, or cut a deal and sell out,″ Gerner said. ``At least in the American model, if they lose their job, they get something in return.″

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