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Vodafone Vs Mannesmann Essay

1978 words - 8 pages

Case #2 – Vodafone AirTouch’s Bid for Mannesmann

Mergers and Acquisitions

Group 4

Mergers and Acquisitions


Executive Summary

Mannesmann’s acquisition of Orange

page 3

Vodafone’s proposal for the acquisition of Mannesmann

page 5

Analysis of the different actors of the deal

page 10

May 13th 2013

Mergers and Acquisitions


Mannesmann’s acquisition of Orange
Companies’ backgrounds
• Mannesmann is a German conglomerate created in 1890 and originally specialized steel tubes production. In 1990, it entered the telecommunication industry by creating the first private mobile phone network in Germany. Then, it quickly became one of the ...view middle of the document...

• Telecommunication industry requires huge investments in fixed assets. Such an acquisition enabled Mannesmann to enter the UK market without establishing its own network. The acquisition of Orange created cost-savings synergies for Mannesmann.

May 13th 2013

Mergers and Acquisitions


Mannesmann’s acquisition of Orange
Was Orange well-valuated?
• Mannesmann paid 6.4 Pounds in cash and 0.0965 newly issued Mannesmann shares for every Orange share. This valued Orange at £ 20bn, a 17% premium over the then-prevailing value of Orange. Orange had a huge potential growth and Mannesmann would benefit from synergies though this acquisitions. But we cannot know whether such items worth & 17% premium. • Nevertheless, on October 18, prior to its announcement of the Orange acquisition, Mannesmann’s share price was at 154.1 Euros, but by October 22, it had dropped to 141.3 Euros, a 8.3% decrease. Thus, given Mannesmann’s share price decrease, market considered this acquisition as an overpaid one.

May 13th 2013

Mergers and Acquisitions


Vodafone’s proposal for the acquisition of Mannesmann
Vodafone’s motivations to acquire Mannesmann
• Hostile acquisition is expensive and risky, especially with a German target. Indeed to succeed, Vodafone would have to face German government scepticism, to convince worker representatives and, more generally, to cope with two social-economic models : the Anglo-Saxon and the Rhineland models. Nevertheless, Vodafone did not give up and insisted on acquiring Mannesmann. • Indeed, such an acquisition enabled Vodafone to expand its area of business • Geographically, Vodafone (UK, US and Japan) and Mannesmann (Continental Europe) are complementary. • Vodafone could enter new businesses (hydraulic, plastic technologies, steel tubes…) and diversify its telecommunication business (mobile, and fixed telephone and internet). • Vodafone would acquire critical size and benefit from synergies. • Mannesmann’s market share would ensure the European leadership to Vodafone. • The combined firm would benefit from synergies : cost-saving synergies and revenue synergies.

The stock swap proposal
Exchange ratio of 53.7 Vodafone AirTouch shares for each Mannesmann share. Issuance of 27.8 billion (= 517.9M x 53.7) new Vodafone AirTouch shares. Mannesmann shareholders would own 47.2% of the equity of the combined firm.
Stock swap 1 Mannesmann share = Thus, 1 Vodafone share = Vodafone Shares 53,7 4,32 € € 232

Market Value of Mannesmann (million €) Market Value of Vodafone (million €)

# shares (million) Value of share 120 104 € 27 800 4,32 € # shares (million) Value of share (exh.14) 154 186 € 31 105 4,96 €

44% 56%

On Dec 17, the market value of Mannesmann’s contribution is €120bn. Mannesmann only worth 44% of the combined firm, while the transaction was supposed to give it 47.2%. Transaction should not have been supported by Mannesmann shareholders.

May 13th 2013

Mergers and Acquisitions



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