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Vodafone Group PLC's acquisition of Mannesmann AG.

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Introduction

Naresh Sohal SMN224 Financial Management: Mergers and Acquisitions Project Student no.: 0129884 Word count 3117 Vodafone Group PLC's Acquisition of Mannesmann AG The selection of this case study was made due to the nature of the takeover. It was a hostile bid by the biggest mobile phone company in the world for the biggest telecommunications in Europe. It turned out to the largest hostile takeover bid in the world at the time, to create the 4th largest firm in the world. Other factors like a UK company buying a German one were unheard of until the outcome of this takeover. All this influenced my decision to choose this takeover. The deal signed signalled a more aggressive approach to mergers. Until now it had been conducted on a more co-operative basis in Europe than in the UK and the USA. Hostile takeover bids are extremely rare in Germany and at the time was seen to be significant in that other German firms are liable for takeovers, particularly the banks and other telecommunications companies. Many even as far to say that the takeover battle has left Germany's business culture irreversibly changed. Mannesmann was originally a steel firm. Only when it was awarded Germany's first private mobile phone license in 1990 did it come into the telecommunication market. Since then it has set up Arcor, a landline phone business in Germany, created Omnitel, a mobile phone company in Italy, and bought a stake in Cegetal in France, followed by the purchase on tele.ring in Austria. It also bought Orange PLC, which at the time the 3rd largest mobile phone company in the UK in 1999. Before the takeover, the head of Mannesmann Klaus Esser announced that it was to split these two interests into two separate entities. This still went ahead after the takeover, leaving the reputation of Gent intact. If Esser had not announced the split before that takeover, Gent would have been seen to be a "ruthless shark". ...read more.

Middle

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. ...read more.

Conclusion

Vodafone have not seen the gains that they would like to have seen. The liquidity ratio below shows that the merger has helped liquidity for one year. This may indicate that liability has increased which is not unusual for a takeover. However as the takeover is in its early stages, time needed to see how successful it is. The EPS shown below is following the trend set by the share prices of Vodafone Group PLC and that of the performance of the telecoms sector. Whether it is due to the merger or just a general trend in the sector has yet to be evaluated. The graph belew that the P/E ratio is following the trend set by the share prices of Vodafone Group PLC, i.e. decreasing. A decreasing P/E ratio shows that the expected earnings are not as high as they used to be. As Vodafone is a relatively young company (15 years old), it may be that the prices are just levelling off to what is a normal state and the merger may not have affected the P/E ratio. The P/E ratio by itself is not a reliable test. However, with the other trends all looking negative, it is fair to say that the takeover has not brought about the success that Vodafone had hoped for. But it is important to note that the sector has not been performing well either. As Vodafone is the biggest company in the FTSE 100 and will be the biggest firm in its sector, it will have a significant impact on the sector performance. Unfortunately for Vodafone, the takeover took place eighteen months before the tragedy of the Twin Towers. This had a massive effect and has brought about the economy going towards a slide. So it is not fair to judge whether the takeover has been a complete failure but it can only be judged if compared to others firms in its sector or more fairer when the world can escape this gloomy economy. Page 1 of 10 ...read more.

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