Vodafone's Bid for Mannesmann
Executive Summary
On December 17, 1999, Vodafone AirTouch, one of the leading international mobile telecommunications companies in the UK, launched a formal hostile bid for Mannesmann, one of its largest peer companies based in German. Mannesmann has just acquired another large UK wireless operator, Orange.
Vodafone first offered Mannesmann €138 billion, or €266/share, which is way higher than its valuation a few weeks ago. But Mannesmann rejected this tender offer and asked for €350/share. Vodafone has to decide whether it should raise the bid or not and how to respond to the issues brought by the German corporate governance law. Key issues are as follows:
1. The synergies of this acquisition are obvious, but the obstacle is the price. Some analysts value Mannesmann in between €174-250/share, while others see it between €250-350/share.
2. The German corporate governance system is very different from the Anglo-Saxon’s. Employees have more say on issues like M&A, which makes it difficult for Vodafone as it needs to convince people that this acquisition would benefit all “stakeholders”.
3. The yet in effect voting restriction in Mannesmann’s articles of association limits Vodafone’s vote up to 5%, no matter how much shares it acquires.
Given these facts, Vodafone has to review its strategy, the valuation of Mannesmann and the probability of successful takeover.
1. Mannesmann’s Acquisition of Orange PLC
On October 20, 1999, Mannesmann acquired Orange to increase its European footprint, in particular in UK, and develop its Internet, mobile and wireless data coverage. However, the efficient market hypothesis supports that Mannesmann had overpaid in their €31B acquisition of Orange, as evidenced by the 8.3% drop in Mannesmann share price from €154.1 prior to the October 19 announcement to €141.3 on October 22. Moreover, the €31B purchase price is 11.4% higher than the €28.4B valuation of Orange as part of Mannesmann (see Case Exhibit 11b). 2.
On December 17, 1999, Vodafone AirTouch, one of the leading international mobile telecommunications companies in the UK, launched a formal hostile bid for Mannesmann, one of its largest peer companies based in German. Mannesmann has just acquired another large UK wireless operator, Orange.
Vodafone first offered Mannesmann €138 billion, or €266/share, which is way higher than its valuation a few weeks ago. But Mannesmann rejected this tender offer and asked for €350/share. Vodafone has to decide whether it should raise the bid or not and how to respond to the issues brought by the German corporate governance law. Key issues are as follows:
1. The synergies of this acquisition are obvious, but the obstacle is the price. Some analysts value Mannesmann in between €174-250/share, while others see it between €250-350/share.
2. The German corporate governance system is very different from the Anglo-Saxon’s. Employees have more say on issues like M&A, which makes it difficult for Vodafone as it needs to convince people that this acquisition would benefit all “stakeholders”.
3. The yet in effect voting restriction in Mannesmann’s articles of association limits Vodafone’s vote up to 5%, no matter how much shares it acquires.
Given these facts, Vodafone has to review its strategy, the valuation of Mannesmann and the probability of successful takeover.
1. Mannesmann’s Acquisition of Orange PLC
On October 20, 1999, Mannesmann acquired Orange to increase its European footprint, in particular in UK, and develop its Internet, mobile and wireless data coverage. However, the efficient market hypothesis supports that Mannesmann had overpaid in their €31B acquisition of Orange, as evidenced by the 8.3% drop in Mannesmann share price from €154.1 prior to the October 19 announcement to €141.3 on October 22. Moreover, the €31B purchase price is 11.4% higher than the €28.4B valuation of Orange as part of Mannesmann (see Case Exhibit 11b). 2.