Vodafone AirTouchs bid for

Mannesmann
 Mannesman & Vodaphone
Jan 99: rumor that VD wants to buy MS
Esser (MS) calls Gent (MS); Gent denies
Feb-oct: talks about cooperation
Oct 19: rumors that MS wants to buy Orange
Gent calls Esser: a more constructive route?
MS-VD talks cancelled
0.0965 MS share + 6.4GBP / orange share
Takeover premium = 17%
MS share price drops from 154 to 141.3
 Mannesman & Vodaphone
Oct 22: Gent contacts Wargubrg & GS
Nov 14: Gent makes offer to Esser
43.7 VD shares per MS share ( 202)
9% premium
Esser finds it inadequate / fights it in court
Nov 19: Gent makes public offer
53.7 VD share per MS share ( 232)
25% premium!
MS board advises sh. to reject the offer
Says true price = 350
 the telecom business in 99
mobile only vs triple play
voice then data (3g, gprs, edge)
GSM norm in europe / no norm in the US
fast growth / low penetration rate

what are the economic forces conducive to

consolidation?
 Mannesmanns reasons for
acquiring Orange
Gain presence in the UK
Gain presence in mobile internet
Synergies
Cost savings
Revenue increases due to bigger size
Capex
Would merging with Vodafone be a
better idea?
Complementary geographical presences
Mannesmann: Continental Europe
Vodafone: UK, US, Japan
Complementary strategies
Mannesmann: Fixed telephone, internet
Vodafone: Mobile
Size
Existing partnerships
France, Italy
Did Mannesmann overpay for
Orange?
 Risk arb
What is the probability that the deal goes
through, as estimated by the market on
dec 17?
Assume that, if failure, MS and VD prices go
back to their oct 21 levels
Assume deal completed in 3 month
Take risk free rate = 5.5%
 Estimating synergies
Using goldman sachs projections (ex 10)
Assume WACC = 7.6%
 Surplus sharing
Take Goldmans valuations of VD and MS
What fraction of synergies do VD and MS
shareholders get?
What is wrong with Goldmans
valuation?
Valuing target & acquiror
 Surplus sharing
Same estimates with a 13.5% WACC
PV of synergies 14.8bn
Value of Vodafone 48bn
Value of Mannesmann 52bn

What fraction of synergies do VDs

shareholders get?
Why did GS choose such a
ridiculously low WACC?
 Takeover defenses
Why could the deal fail?

Why is Esser fighting so hard?

Mannesmann, Dec.
1999:
It has a lot
planned
Vodafones reply:
Every Mann knows: If you want to grow,
you need a good mother
Mannesmanns reply:
A hostile mother is the
worst thing in the
world
 Essers last defense
Call a white knight:
Vivendi Universal
 The conclusion
Jan. 2000:
Vivendi announces joint-venture with Vodafone in
the Internet business
Feb. 2000:
New offer by Vodafone: Mannesmann is offered
49.5% of the new company
Mannesmann accepts
 The aftermath
Orange is sold to France Telecom
Other Mannesmann businesses are sold
Esser accuses J.M. Messier of being indecent
and dishonorable
Messier sues him
Esser accused of receiving $30m for accepting
the deal
Sued by shareholders
Gent criticized for receiving $15m for completing
the deal
Stock prices