Chasing a merger: Mannesmann skirts Vodafone AirTouch

Vodafone AirTouch last week continued pursuing Mannesmann, hoping to create a cross-border wireless behemoth. But Mannesmann's management stepped up its public fight against the offer, saying it was not satisfied with the takeover bid or the proposed business strategy. Will more money be enough for Vodafone AirTouch to win?

At $144 billion, the company's current bid - the original offer was $106 billion - represents the largest-ever corporate takeover and has garnered a favorable reaction among some investors. Despite this, Mannesmann remains defensive.

"Mannesmann's argument against a merger is weak," said Bob House, vice president of Renaissance Worldwide in London. The company and its CEO, Klaus Esser, maintain that its strategy of investing in both wireless and fixed-line businesses conflicts with Vodafone AirTouch's wireless-only approach.

"Both sides recognize the potential of the merger. The real argument is about management control," House said. "Mannesmann has an extremely successful company on its hands, and it wants to maintain control. If it perceives it will lose independence, it will be to Vodafone [AirTouch] rather than someone else."

However, Vodafone AirTouch is not likely to let up, despite skepticism from some industry observers.

"Our belief is that it will be very hard to win a hostile bid," said J. Michael Gallipo, portfolio manager of the Monument Telecom Fund.

Mannesmann has not closed the door completely, though, and Vodafone AirTouch could come back with a higher bid. On the other hand, Gallipo does not know if that would be worth it. "At some point, you just reach a point where it's just not worth winning."

- Gain an unmatched European footprint and control of non-incumbent mobile operators D2, Omnipoint, Libertel and Vodafone UK

- Have more than 42 million proportionate customers worldwide, 30 million of which are European, and the potential to serve 510 POPs

- Go public with Mannesmann's engineering and automotive businesses

- Spin off Orange to the shareholder base of the combined group

- Have the largest GSM network in the world

- Keep Mannesmann's fixed-line businesses separate under current management, maintaining strategic flexibility to maximize value, which may include an IPO.

Source: Vodafone AirTouch