Transcript of Vodafone + Mannesmann merger

The Players 84.7 billion, 200 million customers in 27 markets across 5

continents (2007). Core business: cellular radio networks Egon Ljubicic
and Ivan Pavic Vodafone Mannesmann Merger Initial Discussions 1999
telecom industry had projections to rise from 650 bn (96) to 1.2 trillion
in 2002 A takeover of Mannesmann would give Vodafone control of mobile
operations in Germany, France and Italy and strengthen its position as the
world's largest mobile phone company Mannesmann AG: Vodafone Group
Plc German based engineering and telecommunications company.
core business: telecommunications
and fixed line telephony Vodafone bought Us firm Airtouch
Communications for 37 bn, creating Vodafone Airtouch, Vodafone Chief
Executive Chris Gent said at the time that the intention was to create "a
Microsoft of mobile phones". The deal was expected to value the pair
together at more than $100bn. Mannesmann's 19bn bid for UK mobile
telecom company, Orange. hoped that buying Orange would place it
outside of Vodafone Airtouch's reach Announcement A bid would be
unwelcome and, given Mannesmann's company structure, it may be
difficult to launch a hostile takeover. Mannesmann company rules limit
individual shareholders' voting rights to a maximum 5% tranche, even if
they hold a larger block of shares "Because of Mannesmann's structure, it
is very difficult to launch a hostile takeover. So one will have to wait for a
comment from the companies involved to see whether a friendly
agreement would be an option" "if Mannesmann bought Orange it would
put it out of the price range of potential buyers, such as Vodafone
Airtouch. Vodafone would also face difficulties in mounting a hostile bid
in Germany, where competition law is tough on such deals. In Nov 1999
Vodafone offered to exchange 43.7 of its shares for each Mannesmann
share with no cash added. This was estimated to be worth up to 65bn,
was rejected by the German company Then Vodafone initiated a hostile
takeover and proposed a stock swap whereby each Mannesmann share
would be exchanged for 53.7 Vodafone shares. Vodafone would issue 27.8
billion new shares and, with 517.9 million Mannesmann shares
outstanding, Mannesmann would then own 47.2% of the combined entity.
The Vodafone offer had been estimated to be worth up to 75bn.
Vodafone had been tipped to make an offer for Mannesmann ever since
the German company announced a deal to buy UK Company Orange. The
German telecommunications giant Mannesmann rejected the takeover
bid, Mannesmann's board said the offer did not contain a cash offer and
was unattractive to shareholders. According to them offer was wholly
inadequate. There was no immediate comment from Vodafone. The stock
market was on tenterhooks, awaiting news of the expected move when

Vodafone releases its half-year financial results. Vodafone may have to lift
its offer for Mannesmann to win shareholders over in what would be the
world's biggest ever hostile takeover battle. Synergies Claimed
Implications Hurdles Vodafone Must Overcome Investors were worried
about the prospect of Vodafone paying over the odds and shares in the
company slipped 3.75p to 292.5p on Monday. Shares in Mannesmann rose
17.68 euros (11.24) to 202.98 euros (129) on the German stock
market.On 19 Nov 1999, Vodafone launched a 79bn (124bn euro) hostile
takeover bid for German mobile phone company Mannesmann followed by
Mannesmann's rejection of a friendly merger offer. Which is set to be the
world's biggest ever contested takeover battle till date.Valuation:Value
offered per share: 240No. of Shares Outstanding: 0.5179 billion Total
value of the company: 240 X 0.5179 billion 124 b If successful this
would result in Mannesmann shareholders owning 47% of the combined
group. The offer represented a 20% increase on Vodafone's initial bid. This
estimate excludes the value of Orange PLC, since Mannesmanns offer to
Orange was not yet bounded. Deal would turn Vodafone AirTouch into the
world's biggest mobile phone company The offer would create an
unmatched European mobile phone network, and a global brand. The
merger would generate savings of more than 1 bn by 2004. The deal
would add the UK to Mannesmann's existing mobile businesses in
Germany, France and Italy. A merger would create a company with mobile
phone interests in 15 European countries with 30 million customers.
Worldwide the group would have the equivalent of 42 million customers.
Deal would enable data business via mobile phones. Meanwhile,
Mannesmann continued to try to strengthen its defences by entering into
talks with France's Vivendi about acquiring a majority stake in Cegetel,
France's second-largest mobile phone operator. Shares in Mannesmann
have risen 119% since October. On Feb 2, 2000 they reached a new high
of 310 euros, ahead of Vodafone's 300 euro offer. Vodafone AirTouch
showed a killer instinct in putting together the resulting 112bn ($182bn)
deal. Vodafone AirTouch and Mannesmann have agreed terms for a
friendly merger. The Mannesmann directors are said to be about to
approve the deal Mannesmann shareholders are expected to get 49.5% of
the merged company Vodafone wants to share the risk of achieving
synergies with Mannesmann shareholders The merger means less
competition in UK
other european markets are very valueable
If the deal is not accepted, Vodafone and Mannesmann would become
competitors troughout Europe and the companies may become less
valueable then before the merger was proposed

A large number of Mannesmanns board members are employees and

union representatives which will make it difficult for Vodafone to get the
boards approval. In addition, even if Vodafone get the required number of
shares to take over Mannesmann (75%), the voting restrictions placed on
large shareholders of Mannesmann may prevent it from taking control. If
this is the case, it may have to wait until June 2000 to replace the board
and take control of management.
The merger may also be complicated by anti-competitive regulations.
Since Mannesmann acquired Orange, the UK government may appose the
deal unless it agrees to spin-it off, which it has. Companies such as D2 and
SFR, which are jointly owned by Vodafone and Mannesmann, will support
the merger because if it fails, Vodafone and Mannesmann will become
competitors and this would complicate joint operations. Hutchison
Wampoa and Mannesmanns shareholders, except those who are
employees, should also support the merger because it would provide
them with a significant return. The groups that would appose the merger
include Mannesmanns employees, Mannesmanns unions and the
German Government as they will be concerned about job losses.
Mannesmanns board is also likely to reject the merger since 50% of its
supervisory board is controlled by employees and union representatives.
Financing of the Deal The Vodafone-Mannesmann battle is a clear example
of principle-agent problems that can arise when a companys
management does not have the same objectives as the companys
shareholders. Since Gent has stock options in Vodafone, would remain in
control of company and would receive a large bonus, he is in support of
the merger. Esser on the other hand does not have a large equity interest
in Mannesmann, he would not receive a large pay-out and he would not
likely be retained in the company. Therefore, he is opposed to the deal. In
the market for corporate control hostile takeovers play an important role.
Hostile takeovers are a mechanism to remove incumbent managers,
induce corporate restructuring, and free up resources that could be used
more efficiently elsewhere. The threat of a hostile takeover also improves
managements performance. Most importantly however is that hostile
takeovers are a mechanism to deal with poor corporate governance
structures that do not act in the best interest of shareholders
Mannesmann has over 2000 employees, the supervisory board will
consisted of 10 shareholders, 7 members from the workforce and three
members from trade unions Even thought the shareholders may have
wanted Mannesmanns management to accept the Vodafone offer, the
board was unlikely to force them to do so since the supervisory board had
a large number of employees and union members on it. Anglo Saxon

system has only one tier. The board members are elected by the
shareholders, are known for their business abilities and usually have a
vested interest in the company. Although the number of directors can vary
substantially between companies, at least 50% need to be independent.
As a result, Anglo-Saxon boards are more likely to act in the best interest
of their shareholders since their interests are aligned. Closure of the Deal
Vodafone financed the bid by issuing bonds of approximately a 135 billion
euro 112bn deal, Mannesmann shareholders got 49.5% of the merged
company, with Vodafone providing 58.96 of its shares for each
Mannesmann share. The revised deal values Mannesmann shares at 353
euros each. The total value of the Vodafone group on the stock market,
after paying $183bn for Mannesmann in shares, will be $365bn (228bn),
making it by far the largest company on the London stock market and the
fourth-largest in the world. The merger creates a huge IT group under
Vodafone chief executive Chris Gent, with some 42 million customers
and interests ranging from the Americas and Australia through the UK,
France, Germany and Italy.
However, Orange, which was bought by Mannesmann, will have to be put
up for sale to satisfy competition regulators in the UK.
Also Vodafone split off Mannesmann's engineering and automotive
operations into a separate company. Revenue: 46.417 billion (2012)
Operating income: 11.187 billion
Profit: 6.957 billion
Total assets: 139.57 billion
Total equity: 76.935 billion
Employees: 86,373 thank you for listening