Phone giant rejects offer

Mannesmann's move may let Bell Atlantic enter bidding war


LONDON -- Mannesmann AG, the German telecommunications giant, rejected a $106.4 billion friendly takeover offer made yesterday by Vodafone AirTouch PLC of Britain, possibly setting the stage for the largest hostile takeover attempt ever and a potential trans-Atlantic bidding war by Bell Atlantic Corp. and other U.S. companies.

Hoping to avoid having to make a hostile bid, Christopher Gent, chief executive of Vodafone, the world's leading mobile phone operator, flew with advisers to Mannesmann headquarters in Duesseldorf, Germany, yesterday afternoon to present an all-stock offer to Klaus Esser, chief executive of Mannesmann.

Gent offered 43.7 Vodafone shares for each Mannesmann share. The proposal values Mannesmann at 203 euros a share, or $209.50, a 9.4 percent premium to Mannesmann's share price Friday and a 25 percent premium to the share price before speculation about a deal arose. The offer values the company, including its planned acquisition of British mobile phone operator Orange PLC, at $106.4 billion.

After the two-hour meeting, Esser dismissed the offer as too low, setting into motion a battle between Vodafone and Mannesmann that could attract other suitors that have been involved in preliminary talks, including U.S. companies such as MCI WorldCom, SBC Communications and Bell Atlantic.

Vodafone executives returned to London after the offer was rejected to re-evaluate their plan and consider making a hostile bid or waiting to see how the markets react to their offer today, people close to the company said. It was unclear last night which route Vodafone would take.

Executives close to Vodafone stressed that as with any hostile bid, the company could decide to abandon the effort. A spokesman for Vodafone said the company is weighing its options.

No matter what Vodafone plans to do, Mannesmann is digging in its heels. "We cannot recommend to the Mann-esmann shareholders to lose the future growth potential they own," Esser said in a statement. "I'm fairly certain that the hostile takeover offer from Vodafone is headed for failure," he was quoted as saying in a preview of today's issue of the newspaper Die Welt.

Esser is intent on keeping Mannesmann independent, people close to the company said, adding that Vodafone's strategy was opposed to Mannesmann's. Vodafone has pursued a strategy grounded in building its wireless network, while Mannesmann is focusing on a combination strategy that includes fixed-line or land-line networks, data networks and wireless networks.

To thwart any hostile bid by Vodafone, Mannesmann has begun searching for another suitor. Late last week, it held preliminary talks with MCI WorldCom, SBC Communications and British Telecommunications about merging, executives close to the talks said.

Vodafone's partner in the United States, Bell Atlantic, has talked with Mannesmann about a friendly deal in hopes of keeping Vodafone from gaining control of Europe's wireless networks, the executives said. Those discussions were preliminary, the executives stressed, and Mannesmann would prefer to defend itself independently.

Vodafone began internal talks about making a bid for Mannesmann a month ago after the German company said it planned to acquire Orange for $33 billion. The acquisition will put the partner-turned-rival in direct competition. The two giants have partnership deals in Germany, Italy and France.

If a bid proved successful, Vodafone would be forced to sell Orange to appease regulators because it would have a stranglehold on the British mobile phone market, and no company is allowed to hold more than one cellular frequency license.

Executives close to Vodafone said the company was considering auctioning Orange or spinning it off and selling shares publicly. Vodafone has begun lining up potential bidders that would not represent a strategic threat if they were to buy Orange.

Vodafone shares closed Friday at 2.9625 pounds, or $4.78, while Mannesmann finished at 185.20 euros, or $191.

Hostile takeovers are difficult in Europe and especially in Germany, where no company has completed a hostile bid. German officials are unlikely to intervene against a hostile bidder, but Mannesmann's articles of incorporation and the makeup of Mannesmann's shareholder constituency pose serious obstacles.

A shareholder resolution dating from the 1970s forbids any one investor from owning more than 5 percent of the company's voting rights, although that restriction is set to expire in June. If Vodafone could get control of 75 percent of the company, it would not have the power to dictate its direction because it could not have more than 5 percent of the voting rights. Executives close to Vodafone repeated their view yesterday that the voting rights do not pose a problem because a deal could take more than six months to complete, and the provision would expire in that time.

Mannesmann's shareholder constituency would be a sticky issue for Vodafone. Its stock is spread widely, with about 60 percent of shareholders outside Germany. Vodafone would have to convince a large and disparate international audience to support it, which would take time and resources.

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