European wireless merger sets record

Vodafone negotiates $183 billion takeover of German company Hostile bid pushed through

February 04, 2000|By New York Times News Service

DUSSELDORF, Germany -- Two of the world's leading companies in wireless communications agreed yesterday to merge in a $183 billion deal, the largest ever.

In a stunning end to the kind of hostile takeover attempt once considered unthinkable in Europe, Vodafone Airtouch PLC of Britain negotiated the acquisition of Mannesmann AG of Germany. The all-stock transaction easily shattered the previous record for a takeover deal, America Online's $165 billion purchase of Time Warner Inc., announced less than three weeks ago.

If consummated, the takeover will vastly expand the geographic reach of Vodafone, which is the world's biggest wireless telephone company, giving it dominance in the European market and a world base of more than 50 million customers. Vodafone has a major presence in the United States and two dozen countries in Asia and Africa.

But the Vodafone-Mannesmann deal is perhaps more important as a watershed in European corporate behavior and the export to Europe of bare-knuckle takeover tactics honed on Wall Street.

Never before has a European company carried off a hostile takeover on such an audacious scale: cross-border, cross-cultural and paid for with shares in a company that was almost unknown outside Britain 10 years ago.

The exact terms of Vodafone's acquisition of Mannesmann require approval by the German conglomerate's supervisory board -- the equivalent of a board of directors. It is expected to ratify the agreement at a meeting scheduled for today.

The deal came just four days before the expiration of Vodafone's takeover offer to holders of Mannesmann stock, which Mannesmann's management had called unwanted, unfriendly and too low.

And although it was nominally called a "friendly" merger yesterday, Klaus Esser, the chief executive of Mannesmann, capitulated only when it became obvious that a majority of his shareholders were about to sell out.

"The shareholders clearly think that this company, Mannesmann, a great company, would be better together with Vodafone Airtouch," Chris Gent, Vodafone's chief executive, told reporters in Dusseldorf, where he has spent the past two days negotiating.

Esser, who had been voluble in his opposition to Vodafone's takeover designs and had been expected to resign, said he would continue to work for the combined company, but he will be subordindate to Gent. Esser will become a nonexective chairman and keep a seat on the company's board. Mannesmann will get an additional four seats on the board.

Mannesmann shareholders will control a 49.5 percent share of the combined company and get 58.96 Vodafone shares for each Mannesmann share they own. Based on Vodafone's closing share price Wednesday of 3.855 pounds or $6.21 the day before word of the deal got out, the total value is about $366.14 per share or $183 billion.

If Vodafone shares hold their value, the agreement will be a bonanza for shareholders in Mannesmann, which is the most widely owned foreign stock in the United States. The takeover price for Mannesmann shares is more than double what it was before the battle began.

The arrangement has to be reviewed and approved by the European Commission, which is expected to issue a preliminary decision Feb. 17. But the deal is a bitter defeat for Esser, who had passionately fought to preserve his company's independence.

Esser insisted last night that the situation was the best possible outcome. "It's not a change of opinion," he told reporters. But the discomfort was evident between Esser and Gent when the two men presented their agreement. Despite a show of collegiality, they could barely bring themselves to shake hands for more than a moment. After a bit of prodding by photographers, they were cajoled into shaking hands again.

Despite Esser's public composure, the takeover is a shock to Mannesmann, an old-line industrial conglomerate that had brilliantly transformed itself into the biggest provider of wireless communications in Europe.

Mannesmann owns national networks in Germany, Italy and Britain. Vodafone owns Britain's second-largest network and scores of other stakes in companies in Europe and elsewhere.

But Gent outmaneuvered Esser on the chessboard of Europe's wireless industry, which is based on a handful of immensely valuable national wireless licenses in each country.

Gent's biggest victory came Sunday, when Vodafone managed to steal one of Mannesmann's longtime allies -- Vivendi SA of France. That move derailed Esser's desperate attempt to hammer out a merger with Vivendi, which would have given him control of a major French network and greatly strengthened his position with shareholders.

Gent cut a deal with Vivendi's chairman, Jean-Marie Messier, by forming a joint venture in Internet services. That deal convinced wavering shareholders that Esser had lost the upper hand, even with his allies, and they immediately began betting on a takeover.

Executives from both companies began to work in earnest together at the start of the week.

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