TIME EUROPE
FEBRUARY 14, 2000 VOL. 155 NO. 6
Vodacious
Europe's first major cross-border hostile takeover will create a global telecommunications behemoth
By CHARLES P. WALLACE Berlin
It's the kind of deal that at last justifies all those business superlatives. The takeover by Britain's Vodafone AirTouch of Germany's Mannesmann is the largest corporate marriage ever and creates the world's biggest telecommunications company. While shareholders ponder the rich prospects of merging booming mobile, fixed line and Internet operations, the deal also represents the Continent's first significant cross-border hostile transaction, using the power of Wall Street to breach fortress Europe.
Like most megadeals, Vodafone's acquisition of Mannesmann came down to money. Klaus Esser, the Mannesmann chief executive who fought doggedly to keep the company independent, noted that Vodafone chief executive Chris Gent had been obliged to nearly double his offer for Mannesmann to $190 billion last week. That easily topped the $131 billion America Online is paying for Time Warner--the previous record for a takeover set less than a month ago.
The newly pumped-up Vodafone will be a communications behemoth, with 42.4 million mobile telephone customers spread over 25 countries, including the U.S., Germany, Britain and Italy. David Dorman, head of Concert, the joint venture company comprising AT&T and British Telecommunications, said the takeover is helping accelerate a consolidation in the industry that will eventually leave only two or three big players. "Mannesmann is a real jewel of an asset," he said.
Frank Wellendorf, a telecommunications analyst with Westdeutsche Landesbank, said the acquisition gives Vodafone huge opportunities to compete against rivals. With systems in so many countries, Wellendorf said, Vodafone will also be able to offer customers attractive rate packages for using mobile phones in several countries. Mobile phone users now pay steep surcharges when they "roam" from their country of residence. "Clearly, Vodafone is in a very good position in comparison to other mobile operators," Wellendorf said.
While the increased money obviously helped win over Mannesmann shareholders, the turning point in the long takeover battle was probably a decision by the French conglomerate Vivendi to form a joint venture with Vodafone to operate Internet services. The British firm had previously cast doubts on the wisdom of Mannesmann's plans to forge ahead with traditional telephone line operations. The German company argued convincingly that business customers want to be able to integrate their Internet use in both mobile and office settings. Vodafone's deal with Vivendi reversed its original stance and gave it a strong fixed line as well as mobile strategy.
Vodafone may now try to forge an alliance with German publisher Bertelsmann, which owns a 50% stake in AOL's European Internet operations. That would give the company access to Bertelsmann's and AOL's content. Gent said last week that the current deal is so complicated that it is still too early to talk about other possible linkups. Among other things, because of competition regulations, Vodafone must now dispose of Orange, the British mobile phone operator purchased by Mannesmann only last year.
In addition to rewriting Europe's business rules, the Mannesmann deal was a watershed politically. When Vodafone's proposal was first announced, German Chancellor Gerhard Schröder issued a thinly veiled warning about outsiders interfering with Germany's corporate system. But in the intervening months, although labor unions expressed concern about the deal, the government never raised the issue in a substantive way again.
Cross-border takeovers were widely predicted to be one of the early benefits of the introduction of the euro by 11 European countries on Jan 1, 1999, but before last week's deal there had been few hostile cross-border transactions. In part, the domestic bias of mergers can be explained by the relative ease of making them work when both companies are in a home market. But government intervention, particularly in France and Italy, has kept foreign banks from making planned bids.
Ulrich Schröder, an economist at Deutsche Bank in Frankfurt, said he doubted whether there would be a rush to acquire other German companies in the wake of the Mannesmann deal. "There are very few companies with that kind of wide ownership on the stock market that can be bought in Germany," Schröder said. And the majority of Mannesmann shares were owned by institutional investors outside Germany, who settled for a quick profit rather than a long-term strategy. After all, Mannesmann shares rose from around $165 last July to about $350 offered by Vodafone. Long-term plans may be important, but even in conservative Europe a profit of more than 100% in seven months is just too tempting to pass up.
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