Largest Merger in History: Vodafone – Mannesmann

I. Background:
1. Vodafone:
For a long time, Vodafone was the largest UK operator. In 1984, Vodafone was
established as the telecommunication subsidiary of Racal Electronics. Later in
1988, Racal Telecom was sold on the London and New York Stock Exchanges. This
latter, in 1988, was fully separated from Racal Electronics and was renamed as
Vodafone Group. During the mid-1999, Vodafone merged with Air Touch
communication Inc. of the United States to create Vodafone Air Touch and was
the largest mobile phone operator in the world and had a successful entry to the
North American market. It offered both integrated wireless and wired services.
Furthermore, it was well known in terms of technological innovations and
pioneering new product development. By year 1999, Vodafone Air Touch PLC had
31 customers worldwide, business interests in 24 countries across four
continents, and later its operations extended to Europe, Africa, and Middle East.
During that time, it had market capitalization equivalent to £90 billion euros.
Vodafone Air touch was the second largest company listed on the London Stock
Exchange and the third in Euro top 300 Index.

2. Mannesmann:
Headquartered in Germany, Mannesmann was an engineering company
established in year 1890. After the World War Two, the company transformed
itself from steel and coal manufacturer into diversified conglomerate.
Mannesmann’s main businesses were telecommunications, engineering and
automotive markets. Its’ major activities in the telecommunications sector were
mobile and fixed line telephony. This latter became the largest mobile phone
operator in Europe.

II. Options:
1. Vodafone:
 As mentioned before in the introductory of the case analysis,
Vodafone ceased to merge with Air Touch in mid-1999. This
 acquisition was worth $60 Billion-Vodafone’s aim behind this
acquisition was to become a global leader in the wireless
communication.
 To strategically grow, Vodafone expanded its operations to
other areas, and its strategic perspective was to block all it’s
competitors by penetrating as much markets as possible. To
achieve so it:
a) Formed a strategic alliance in Europe with:
i. Bell Atlantic: On September 21, Vodafone
announced to merge its U.S. wireless operations
with those of Bell Atlantic Corp. to create Verizon
Wireless. Under the terms of this venture, Bell
Atlantic agreed to convey Vodafone a forty five
percent stake which mainly covered %90 of the
U.S. population.
ii. Belgacom
iii. BT
iv. Cegetel
v. TDK
vi. TTW
b) Established alliances with Governmental companies in:
i. Greece
ii. Holland
iii. Portugal
iv. Sweden
c) Formed Joint Ventures with:
i. TDC Mobile
ii. France Telecom
d) Acquired Eircell in Ireland.
2.Mannesmann:
a) Mannesmann acquired Deutsche Bahn’s fixed line
division in collaboration with Deutsche Bank and AT&T
and formed a business called Mannesmann Arcor.
 b) Acquired interests in the France market; specifically, in
Cegetal.
c) Acquired interests in the market of Austria, specifically
in Tele. Ring.
d) Acquired stakes in the Italian market, specifically in
Omnitel and Infostrada.
e) On October 20, 1999, Mannesmann approached Orange,
a French multinational telecommunications business,
about a deal. This latter paid Hutchison Whampoa 20
billion Euros to buy 44.82 shares in Orange, which made
it Europe’s largest mobile network operator.

III. Vodafone’s Chase for Mannesmann/How did the negotiation take place?
1. Vodafone’s takeover of Mannesmann was triggered by
Mannesmann’s sudden agreement to purchase Orange.
2. On November ,1999 Vodafone announced a friendly proposal for
Mannesmann in return of exchanging shares between each other.
The proposal was to pay a €143 premium to Mannesmann.
3. Mannesmann declined the aforesaid offer.
4. The Vodafone bid was officially rejected by the Mannesmann
supervisory board on November 19, 2020.
5. Vodafone returned with a higher offer, exchanging 53.7 Vodafone
shares for each Mannesmann share.
6. Mannesmann management indicated that Vodafone is not a strategic
match for their firm since their structures and economic
development prospects are so dissimilar. Vodafone is primarily
focused on mobile phones, but Mannesmann is far more diverse.
7. Another reason for rejecting Vodafone’s offer was the fact that
Mannesmann valued itself far more than 350 euros/share especially
when it had that bid for Orange.
8. During November and December of the year 1999, Vodafone
planned different campaigns in numerous regions of the world like
UK,US and continental Europe in a way to convince Mannesmann
shareholders to the justification of the deal.
 9. Vodafone indicated in the second week of January 2000 that it would
consider raising the offer amount if Mannesmann agreed to a
friendly takeover.
10. Vodafone and Vivendi launched a combined mobile/Internet
gateway on January 30, 1999. As a part of the agreement, Vodafone
offered Vivendi 1/2 Mannesmann's 15% stake within the French
fixed-line company Cegetel.
11. Mannesmann's board of directors was greatly surprised by the news
of the sale. When the Mannesmann management recognized that
Vodafone's aggressive takeover may succeed, they modified their
strategy.
12. After a 3 months long battle, Mannesmann's board of directors
approved Vodafone's offer on February 3, 2000.

IV. The final deal:

1. As a result of the revised terms, the deal was valued at $180.95
billion (£224 billion).
2. Mannesmann shareholders received 49.5 percent shares of the
merged firm, with 58.96 Vodafone shares for each Mannesmann
share.
3. The amended offer valued Mannesmann shares at 350.5 Euros each,
with the company's share capital valued at € 181.4 billion, based on
Vodafone's closing price on February 3, 2000.
4. Esser joined Vodafone board as an executive director, at the same
time kept his position as CEO at Mannesmann.
5. 4 members of Mannesmann supervisory board joined the board of
Vodafone.
6. Goldman Sachs was the principal advisor for Vodafone AirTouch.
7. While Morgan Stanley and Merril Lynch were advisors for
Mannesmann.

V. What was Vodafone’s Aim?

1. To strengthen its position in the European Market.
2. Reduce its risks with its competition with Mannesmann.
 3. Diversification of business by acquiring fixed line capabilities.
4. Obtain Mannesmann entire market share.
5. Achieve technological leadership in the mobile phone industry.
6. Integrate and develop Mannesmann’s telecommerce activities.

VI. What was Mannesmann’s aim?

1. Benefit from Vodafone’s widespread in the United States.
2. Keep their existing facilities in Dusseldorf area.
3. Preserve the jobs of its employees.

VII. Mutual aim for both:

1. Both realized the importance for control to become the dominant
players, especially during that time the mobile telecom industry was
witnessing a transformational change.
2. Cost savings, especially that it was very expensive at that time to
acquire a 3G license.
VIII. Key Failures:
1. There was an immediate drop in Vodafone’s stock after the
transaction due to considerable dilution and the benefits from the
synergies would not present themselves for some time.

2. The agreement promises were not kept, and Vodafone did the
following:
a) Sold Orange to France Telecom 
b) The subsidiaries of Mannesmann including Atecs
engineering was sold to Siemens AG.
c)