Sir Chris Gent, the chief executive of Vodafone Airtouch put forward the idea to bid for Mannesmann. His main motivation was that Mannesmann went back on a gentleman’s agreement with Mannesmann not to compete against each other. However, this changed in mid-November when Mannesmann bought Orange PLC, a direct competitor against Vodafone. At the time, Orange was the 3rd largest mobile phone company in the UK.
Vodafone now saw its own strategic interests seriously threatened by Mannesmann’s move. It also saw Mannesmann’s strength in mobiles across Europe, in Italy, Germany and France as an attractive coup, to become a European, and world giant in mobile phones sector. The expansion into Europe was eagerly sought at the mobile phone market continues to grow rapidly with the emergence of 3G phones, which are yet to released. It was estimated, that at the time of the merger, mobile phone ownership is expected to double to 1 billion by 2003.
Other reasons include keeping costs down for customers to get cheaper 3G access and bring better international roaming. Even the complex issue of roaming charges would be simplified for customers. It would enable the activation of simple features abroad such as voice mail. Vodafone buying Mannesmann seems like the natural thing to do. Mannesmann was the largest telecommunications company in Europe and Vodafone was the largest mobile phone company in the world. Together, they would form to become the largest telecommunication company in the world, which it currently lags behind to firms in the US.
Vodafone first made their bid on 13th November 1999, of ï¿½65bn. Esser fiercely rejected this. Gents determination led to the hostile bidding by Vodafone. The bid was made to the shareholders of Mannesmann in the form of shares. There was no cash swapped over and Esser is said to be responsible for the final terms of 58.9646 shares for every Mannesmann share. This would give Mannesmann investors 49.5% of the combined group, rather than the 47.2% originally offered. The decision to offer shares of the combined group was taken, as the cash required for this acquisition was simply just too vast an amount.
The total value of the new company was 228bn. Mannesmann’s Views Mannesmann first decided to refuse the original offer. The response this offer was quick and straightforward – “too low and unacceptable”. Esser told the shareholders that Mannesmann has a growth rate of 30% while Vodafone has a growth rate of 18%. He maintained that Mannesmann does not need Vodafone to grow. The chairman of the supervisory board, Joachim Funk, said, “This offer is not acceptable in either form or substance and fails to meet the value test”
Esser believes that Mannesmann’s strategy of integrating fixed-line and mobile operations was superior to Vodafone’s sole focus on wireless communications. Mannesmann were quite with their intent to defend their firm. Plans to float their Internet arm to show how valuable it was. Investors were disappointed. Strengthen defences by entering talks with Vivendi by acquiring stake in Cegetel – leading to Mannesmann controlling the top mobile firms in the top markets of Europe, i.e. UK, Germany, Italy and France. Esser denied looking for a white knight, but did confirm to be looking for partners around the world (Europe and America)
They used Bild, a popular daily in Germany to condemn the bid and called for resistance against the bid. Many politicians shared this view and condemned the bid (see above) Esser has put aside 200m Euros to defend itself against the hostile takeover bid. This would cover an information campaign; including a full-page newspaper advertisement in British and German papers and an international investor road show headed by Esser himself.
This is all to convince investors that the company can offer them a better deal on its own. An international road show was needed, as Esser was well aware that although Mannesmann was a German firm, investors abroad already own 60% of the firm’s shares. They also complained to the high court that the investor bank, Goldman Sachs were allowed to act for Vodafone as Goldman Sachs had recently worked for Mannesmann during their bid for orange which took place just a few months beforehand.
Esser had tried to show the shareholders that resisting the offer by Vodafone was in their best interests. However the shareholders took a different view. In fact, some went as far to threaten legal action in the US to try and force the company to talk to Vodafone. In the face of failure, Esser remained defiant and insisted that the shareholders took the decision based on short-term financial gain.
He believed that 90% of the shareholders believed that Mannesmann had better long-term prospects but been swayed by the instant profit. In the time the bid was launched in November 1999 to when the bid was accepted in February 2000, the share price for Mannesmann had doubled Seeing that Esser was fighting a losing battle to resist the bid, they went to the bargaining table. Although he was unable to get cash for this investors, he was widely credited for squeeze an extra five shares. To be known for creating shareholder value as he was, is a very envious position to be in the financial market.