标签： mbacorporatefinancevodafoneairtouchmannesmann财经| 分类： CorporateFinance | HARVARD BUSINESS SCHOOL
REV: AUGUST 22,2003
Vodafone AirTouch's Bid for Mannesmann
I. Mannesmann’s acquisition of Orange
A Back grand introduction
Mannesmann, formed in 1890 as a producer of seamless steel tubes, entered the telecommunications industry in 1990 by establishing and operating D2, the first private mobile phone network in Germany, and then it quickly became one of Europe’s largest telecommunications companies. By 1999, it had gained a leading position in four of the largest European mobile markets. Orange, formed in 1994, was the third largest wireless operator in the UK with a market share of 18%. It was the last major operator in the UK market which was not part of an international telecommunications group. B Rationales behind
Mannesmann acquired Orange on October 20, 1999. The agreement specified that Mannesmann would pay 6.4 in cash and 0.0965 newly issued Mannesmann shares for every orange share. In terms of strategic rationales, firstly, to enter the UK market, the best way for Mannesmann is to acquire a company that has big market share. The customer is relatively hard to attract to a new operator. If the M enters the UK and develops its own customer, it has to attract the customer from other competitor, which means it has to provide low cost but better quality service. It is a painful process. From the wireless Players in the UK market, we see that Orange has the No.3 market share, which is 18%. This market share could help Mannesmann to directly enter the UK market. If it acquires orange, it could use the orange customer and fix assets, to further invest and develop new customer, which is far more easier than grow own customer. Secondly, the further strategic concern may be that the Mannesmann owns the market share of Germany, which makes it a goal for Vodafone. If Mannesmann acquires Orange, it is a good way to develop itself. This acquisition also provided Mannesmann a greater bargaining power when negotiate with Vodafone. In terms of economic rationales, firstly, Orange is expected to grow rapidly in the future. Mannesmann was attracted by Orange’s spectacular growth- it had a CAGR of 115% over 1994-1998. Secondly, this acquisition can create a great synergy. In the telecommunication industry, the operator needs to invest in fixed assets heavily. It could be a big cost to establish own network. This is a “save in cost” synergy. C Valuation of Orange
Did Mannesmann overpay for Orange?
Mannesmann paid 6.4 Pounds in cash and 0.0965 newly issued Mannesmann shares for every Orange share. This valued Orange at 20 Pounds (30 Euros) billion, a premium of 17% over the then-prevailing value of Orange. On October 18, prior to its announcement of the Orange acquisition, Mannesmann’s share price was at 154.1 Euros, but by October 22, it had dropped 8% to a low of 141.3 Euros. From Exhibit 3, we know European Average EV/EBITDA is 21.9, and European Median EV/EBITDA is 21. However, EV/EBITDA of Orange is 77.5, which use the acquired price to estimate the enterprise value. Furthermore, we think in a communication industry, a company’s value is largely defined by the equity subscribers. From Exhibit 8, which describes the European Mobile Transactions in 1999, we found that the EV/Sub of Mannesmann – Orange is much higher than others. From the market perspective, 17% of premium and a decrease in the price of Mannesmann’s stock of 8% both shows that this acquisition might be an overpaid one. Although, based on the strategy, there are huge growth of Orange itself and the synergies. We cannot say that the synergies are big enough to cover the premium. Therefore, based on the analysis above, we think Mannesmann overpaid of Orange. Although some time later, Mannesmann stock price kept increasing, we think it is because...