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Vodafone Sweetens Bid for Mannesmann

Telecom: British giant's hostile offer for German firm would be biggest takeover ever.


BERLIN — Britain's Vodafone AirTouch on Friday launched the world's biggest takeover bid, seeking control of Germany's Mannesmann telecommunications and engineering empire in a hostile move worth up to $137 billion.

Still smarting from a Mannesmann rebuff of an acquisition proposal last week, Vodafone announced it was taking its sweetened offer directly to shareholders of the Dusseldorf-based target in what amounts to a declaration of war on the hidebound managerial practices of German industrial giants.

The escalating battle has quickly taken on overtones of political rivalry between Europe's two most important economies. Hundreds of Mannesmann employees took to the streets in protest as the supervisory board reviewed the latest Vodafone terms.

British Prime Minister Tony Blair and his German counterpart, Chancellor Gerhard Schroeder, have jumped into the fray, siding with their home-country industrial giants.

"British Arrive With Knockout Offer: Will Greed Win Today?" Germany's mass-circulation Bild newspaper screamed in a front-page headline.

A takeover of Mannesmann by Vodafone, which is Britain's second-largest company, would create the world's largest mobile phone group, with 42 million customers worldwide.

With most market analysts describing the Vodafone offer as fair, the hostile takeover might be headed for success unless a rival bid is made by a "white knight" with which Mannesmann executives would prefer to merge.

Consolidation has been the prevailing strategy of major telecom firms over the past few years as companies seek synergies and larger global market shares through acquisitions and mergers.

Just a decade ago, Mannesmann was known mainly for having invented seamless steel tubing and had just won its first German mobile phone license. Since then, it has become one of Europe's most dynamic telecom groups. Share prices have risen by nearly 400% over the past two years. If Vodafone succeeds in taking over Mannesmann, it would have dominance in the mobile communications sectors in Germany, Italy and Britain, as well as enhanced positions in France. The merged company would also be better set to challenge the other industry giants on the Continent--Deutsche Telekom, BT of Britain and France Telecom.

"We think this is a very good offer. It is our final offer, and we expect to gain support from the Mannesmann shareholders," Vodafone Chief Executive Chris Gent said in proclaiming the highly unusual quest to take over an industrial behemoth in Germany, where government regulations impose a unique interdependence between managers and labor.

Vodafone presented the terms of the revised offer of $249 a share--up 18% from the $211 figure the Germans rejected Sunday--to a meeting of Mannesmann's supervisory board Friday.

Mannesmann executives adjourned their deliberations after several hours, saying they would resume debate on Nov. 28. But the postponed vote was tantamount to rejection, as the British company expects to know early next week whether enough shareholders will be lured by their 53.7-to-1 stock swap offer for the takeover to succeed.

The supervisory board was unquestionably opposed to the new offer, according to German media reports that cited management sources.

While Vodafone's Gent appeared confident the "compelling logic" of the offer will sway Mannesmann shareholders, analysts noted that the volatility of Vodafone's share price in recent days might make those with Mannesmann stock nervous about a cashless deal.

"There's a high degree of insecurity when one trades Mannesmann shares for other shares instead of Mannesmann shares for cash. It's completely unclear whether it will work out" to the stockholder's benefit, said Goetz Albert, an analyst with Frankfurt's Independent Finance Analysis firm.

Mannesmann's factory committee director, Friedrich Apfelbaum, doubted stockholders will be wooed by the British offer.

"We think a pure share swap is uninteresting for the shareholders," he told journalists.

British analysts, however, said they expected Vodafone to prevail.

"I think the deal has a good chance of success," said Gary Jenkins, head of European credit research at Barclays Capital in London. "The price is in line with expectations and it's an all-share deal, which appeals to us."

Major shareholders in Vodafone had given Gent the go-ahead on the hostile bid, agreeing with company strategists that merging the two telecom giants would benefit shareholders on both sides.

"The deal makes good strategic sense, as there is little overlap in their businesses and ultimately the most successful telecom companies will be global," said Graham Wood, head of British and European equities at Standard Life Investments, which owns stock in both companies.

Mannesmann executives have resisted, contending that the companies' expansion strategies are too different. The German conglomerate wants to concentrate on the European market and continue integrating fixed-line services with wireless.

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