Mannesmann object of hostile bid

Vodafone AirTouch, spurned by Mannesmann's recent Orange acquisition, is moving to acquire the German operator in a scene that is growing ugly quickly. Vodafone AirTouch's original bid of $106 billion for Mannesmann, made more than a week ago, was rejected almost without consideration.

On Friday, Vodafone AirTouch upped its bid about 18% to $137 billion, making it the largest takeover ever if successful. The bid follows a note sent by Mannesmann's CEO on Thursday to Vodafone AirTouch, urging the operator to withdraw its proposal. As a result, Vodafone AirTouch directed the new bid to Mannesmann shareholders.

"This is the only way we can present Mannesmann shareholders with the option of investing in the world's leading international mobile telecommunications company," said Chris Gent, CEO of Vodafone AirTouch, in a statement.

A number of reports claimed the bid was not large enough and likely will attract counter-bidders. Additionally, some German unions, which have historically blocked attempts at hostile takeovers, are preparing to fight the Vodafone AirTouch offer.

"We are confident that an unsolicited offer can succeed, but it's clearly not our preferred option," said Arun Sarin, CEO of Vodafone AirTouch's U.S. and Asia-Pacific regions.

Staunchly independent with plans to become a global superstar, Mannesmann could pull out some defensive stops. One such move could be a bid for Voice-Stream in the U.S. That would expand Mannesmann's GSM footprint into the U.S. and could dim Vodafone AirTouch's interest because the resulting overlapping properties.

Vodafone AirTouch believes that such a move would go against German laws, which state that a company can't purposely attempt to thwart a takeover that would improve shareholder value, said Ken Hydon, chief financial officer for Vodafone AirTouch. It's debatable, though, which deal would be better for Mannesmann - VoiceStream or Vodafone AirTouch.

Mannesmann's acquisition of Orange may have been an attempt to prevent an offer from Vodafone AirTouch. The purchase surprised Vodafone AirTouch, which works closely with Mannesmann through partnerships in Germany and Italy. "We were perplexed about the Orange thing," Sarin said.

Conflicting reports indicate that other U.S. operators are interested in Mannesmann. MCI WorldCom, SBC Communications and Bell Atlantic have been suspected of holding talks with Mannesmann since the original Vodafone AirTouch bid.

But each of these possibilities has good reason for failure. "With MCI [WorldCom], how many things can you digest at once is the question," said Martyn Roetter, vice president of communication technology for Arthur D. Little. MCI WorldCom is acquiring Sprint. SBC, Roetter argued, usually pursues opportunities where it would be in a privileged position. The German market is so competitive that buying Mannesmann might not fit that mold. Bell Atlantic just agreed to pair up with Vodafone AirTouch in the U.S. so it's unclear how a Mannesmann/Bell Atlantic combination would solve Mannesmann's problem.

There is no clear prediction on Mannesmann's chances of fending off Vodafone AirTouch. The method of buying other operators to become too big to get bought clearly didn't work in the Orange scenario. "It's a risky strategy," Roetter said.

Mannesmann can fend off the bid, said Andrew Cole, principal for Renaissance Worldwide. "It all comes down to price," he said. Vodafone AirTouch may not be able to offer enough to prove that the deal would be in the best interest of shareholders.

- Synergies of about $807 million by 2003

- Interest in either the No. 1 or No. 2 operator in 11 European markets

- Operations in 15 European markets

- 42 million proportionate customers

- 510 million proportionate pops

- A projected 400 million mobile Internet users by 2004

- An expected 20% of revenues to be generated by wireless Internet by 2003

Source: Vodafone AirTouch