Since its launch in 1985, Vodafone had grown to be Britain’s largest mobile phone operator, with one in eight people in the UK owning a Vodafone by 1999. By 1999, when it acquired AirTouch Communications Inc. of the US it had become a significant world player in the rapidly expanding mobile telecommunications market. The take-over of Mannesmann catapulted Vodafone into the world’s top ten companies, making it the biggest mobile phone operator in the world.
About Vodafone
Vodafone Airtouch became world’s biggest mobile phone company in 1999. They began as a division of Racal Electronics as a small defense contractor, in 1982. Still under the company name of Racal Telecom, they launched UK’s second cellular telephone network, under the name ‘Vodafone’ on 1 January 1985. Since then Vodafone grew steadily and after initially offering 20% of its shares on the London and New York Stock Exchange in October 1988, the company became fully independent in late 1991 when the remaining shares were issued in the largest corporate demerger in UK corporate history. Vodafone AirTouch was the result of a 62 billion-dollar merger in early 1999 between Vodafone and AirTouch, a Canadian company – actually, the largest mobile operator in North America with a customer base of approximately 9 million users. The thinking behind the merger was a strategic step towards expanding the penetration of mobile phone services to the largest possible number of customers and to the largest possible number of markets that offer prospects of profitability in the medium and long term. In order to achieve this goal, the strengths of the merger will be capitalized upon. At the end of 1999, Vodafone was the world’s largest mobile phone operator. It operated in 23 countries and had around 28 million customers. Vodafone’s activities were focused entirely on providing mobile telephone services. Vodafone’s offer included the sale and rental of handsets and the transmission of voice and data by mobile telephone, with a wide variety of payment systems.
About Mannesmann
The brothers Max and Reinhard Mannesmann, who invented a new process for manufacturing steel tubes, created Mannesmann AG in 1885. Together with ore extraction, this business fuelled the company’s activities for almost half a century. At the end of 1980 Mannesmann embarked on a process of diversification and formed a telecommunications division to operate a mobile phone license in Germany. During the 90s this division expanded its activities to include fixed telephone and data services.
In 1999 Mannesmann announced a bid worth approximately 28 billion Euros for Orange, which was accepted. In the same year France Telecom took over control of E-Plus for approximately 7.4 billion Euros, Germany’s third-largest mobile phone operator. Orange was the third largest mobile phone operator in Great Britain in terms of number of clients. It had been created in 1997 and specialized exclusively in cellular telephones. In 1998 it had sales revenues of approximately one and one quarter million dollars, and at the end of 1999 its customer base in the UK was close to 5 million and millions more in newly expanded territory in Belgium and Switzerland. Orange in the UK was now a serious threat to Vodafone’s leadership position, and in late 1999 Orange had won up to 30% more customers than Vodafone. In some segments, such as pre-paid services, Orange had become the leader. Hence, with the acquisition of Orange, Mannesmann was assured of a privileged position in the British market. Despite the opportunity of profit, Mannesmann would be blocking any possible takeover bid by Vodafone AirTouch by following this path.
In 1999 Mannesmann had three basic lines of business: Telecommunications (39% of total sales), engineering and automotive (53% of total sales), and tubes (8% of total sales). While in 1990 telecommunication was not even part of Mannesmann’s business, in 1999 it contributed 39% of the group revenue and around 70% of its earnings. With 36 million customers in Europe, Mannesmann had become one of the top firms in European telecommunications. Its total market capitalization tripled during the year 1999 from 38 billion Euros in 1998, to approximately 110 billion Euros at the end of 1999. Mannesmann’s telecommunications division was made up of three basic businesses. First, mobile telephone services in several countries. Second is fixed-line telephone. Third is a growing activity as an Internet service provider. Mannesmann’s aimed to become the European leader in integrated telecommunications, offering a full range of services.
The Takeover Process
This merger report is based on five different processes like formulate, locate, investigate and negotiate.
1 Formulate
Vodafone was solely acting in the mobile phone market whereas Mannesmann was an integrated technology company. This certainly was the most significant difference between the companies. The CEO’s of both companies had different visions how to lead their firms to a growing future. To reach economies of scale and pave the way for standardization in technology, Vodafone increased its size and global reach. It focused exclusively on mobile communications, rather than combining mobile and fixed networks. In fact, Vodafone’s wireless strategy was very successful and rewarded its shareholders handsomely. Acquiring Mannesmann would give them a quick access to the promising telecommunication market in Germany and foster the fast growing strategy.
2 Locate
During October 1999 a group of Vodafone and Mannesmann managers held talks to explore the possibility of Mannesmann accepting a friendly offer from the British company. Vodafone showed great interest in gaining control of the German company. On October 19, the press reported Mannesmann’s interest in acquiring Orange PLC, Vodafone’s rival in the UK market. Mannesmann’s offer for Orange was a disappointment for Vodafone, which had assumed that it would be the preferred partner. As a result Vodafone announced to substantially add on their initial offer, as well as to spin-off the engineering and the automotive divisions of Mannesmann. In order to get approval by the regulatory bodies they also disclosed to separate the Orange activities.
3. Investigate
The combination of Vodafone and Mannesmann would give rise to significant synergies, like building a global platform for mobile and internet services, but major obstacle was the voting restriction in Mannesmann’s articles of association. By this statute, no shareholder was entitled to vote on excess of 5% of the outstanding capital stock of Mannesmann. This meant that regardless of the number of shares acquired by Vodafone, its vote could not exceed 5%. There was also concern regarding the response to the hostile takeover in Germany and the ensuing debate in Europe. Vodafone a foreign company planning the world’s most expensive hostile bid created public response.
4. Negotiate
After more than two months of problems between the two companies seemed to be nearing a conclusion. Fortunately the official offer by Vodafone, accepted by the Mannesmann shareholders, was launched on December 23, 1999 and consisted of 53.7 Vodafone shares for each Mannesmann share. The bid valued each Mannesmann share at pound 266.4 (a total value of pound 120 bn) which was on the last closing price of Vodafone. Vodafone told Mannesmann shareholders that its offer was giving them an important premium, taking into account the value of pound 1578 that had been used in the acquisition of Orange two months earlier. On November the 19, 1999 the Mannesmann share price was already pound 1931 and Vodafone share price 283.5 pence. On December 23, 1999. Mannesmann share price pound 239 and Vodafone share price was 302.25 pence, and deal got a green signal.
The Post Merger
A post merger analysis with respect to strategy reveals that, tactically and in relation to development, growth and profit, Vodafone and Mannesmann were almost identical. While both companies involved were European, they each had global aspirations (with Vodafone taking over AirTouch earlier in 1999). This shows that while lagging behind US firms in the fixed-communications industry, European companies are at the cutting edge of the mobile sector.
In most post analytical circles, the Vodafone mega-merger is described as a partially successful horizontal merger. Those who declare this partly attribute it to the nature of the merger and the difference in corporate cultures. The German corporate structure is famous for bureaucracy, organizational hierarchy and rigidity in thought. Whereas Vodafone had over the years adopted a free-lifestyle sort of corporate structure. Both companies had a similar taste in corporate mission, strategy and goals. This similarity and the fact that post merger integrated management team created by Vodafone Airtouch they did not prevent the mass organizational by Mannesmann employees that occurred shortly after the hostile takeover was finalized.
As per the Vodafone’s annual reports it is cleared that the financial gains made by the company before merger took place. Statistics show that, in the first quarter of 2003 alone, there is a strong growth in customers, operating profits (pound 9.2.bn, up by 30%), free cash flow (pound 5.2 bn, more than double figures of the preceding year), EBITDA and adjusted earnings per share (6.81 pence). With such financial outlook, so as per data it is clear that the financial aspect of the mega merger was very successful.
The synergy effect is best analyzed on benchmark basis. The synergy effects in the Vodafone merger could best be qualified on the basis of the benefits received when using a continental partner in the sectors of marketing, logistics, brand image, brand awareness, product development and technology innovation. The merger allowed former Vodafone AirTouch to gain access to ‘the continent’. Vodafone Sufficiently broadening its customer base from about 28 million to around 59 million. Vodafone, before the merger, was and always been geared towards a one-market policy: That of the mobile sector using GSM technology. Where Mannesmann was a conglomerate with ambitions of diversification. The merger drastically enhanced the logistics, marketing strategy, brand awareness and technological capacity and capabilities of the company.
The new joint company Mannesmann and Vodafone created the largest European is being taken over by Vodafone; the new joint company creates the largest European network comprising four of Europe’s largest mobile operators with over 30 million customers and a presence in 15 countries.
After the merger, Vodafone floated Mannesmann’s engineering and automotive businesses as an independent company, which would keep the Mannesmann name. However, Mannesmann’s engineering and automotive business was renamed to Atecs and bought jointly by Siemens AG and Robert Bosch GmbH for almost $9 billion later in 2000. Consequently, the portion of customers is lost and shifted to Siemens and Robert Bosch. Moreover, Orange de-merged from the new company was sold subsequently in 2000 to France Telecom in a deal worth around 31 billion pounds creating Europe’s second largest mobile phone group with market capitalization of 150 million Euro. Former user or customers of Orange under the Mannesmann’s name as whole are transferred to France Telecom automatically after Orange is dismissed by Vodafone when it is taking over the Mannesmann.
Is this merger a success or not?
1. Organizational Cultures
The organizational culture within Mannesmann was well developed. Employees identified themselves with the company; the style of behavior could be described as very social. However, with the new more target oriented regime of Vodafone this changed dramatically. Some members of the Mannesmann board lost their jobs and due to their special qualification and requirements they are not able to find a new position in another corporate group. For others, like the CFO Mr. Weissmuller who came from Mannesmann, the takeover boosted his career. It can be said that now there is one Vodafone organizational culture in the German part of the group.
2. Internal view
The telecommunication market was and is one of the highly competitive markets because it is future oriented and still can generate stories shareholders love so much. From this point of view the takeover was a success. Vodafone is more capable to reach customers around the globe and to provide them with wireless solutions.
3. Customer View
From the customer point of view there was almost no change, regarding the telecommunication sector. The customers in this market seem to be more loyal to the high quality product to a fair price, and not to the company that stands behind it.
Conclusion
Vodafone AirTouch’s 114 billion pound hostile take-over of Mannesmann in the last quarter of 1999 was based on the objectives like achieving a bigger scale that would stimulate cost reduction, Achieving technological leadership, achieving a significant presence in continental Europe. In the telecommunications industry to achieve some objectives by Vodafone was characterized by a great number of merger series, fluctuating market shares, unstable market structure, and the uncovered field of new small nascent markets with high growth prospects, they had to take over a very strong potential rival, Mannesmann. The hostility of the bid and the subsequent victory for Vodafone, the former company Mannesmann interpreted the whole debacle as a failure on their part and an intrusion of a foreign company into German territory. This resulted in friction with respect to the post merger attitude as concerns human resources.
Post merger analyses reveal that despite some corporate and national cultural differences, the synergy effect in the financial domain is on a very positive. The customer base has doubled to around 53 million world-wide, customer loyalty is on the hype, market share has risen by about 30% in the first quarter of 2003 alone, and operating profits stand at around 9.2 billion pound. In parallel unison with Vodafone’s current focus/strategy of delighting customers, leverage global scale and scope, expanding core business, building the best work force and creating shareholder value, hence, in that light, the merger was successful.
References
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3. http://www.mannesmann.com.br/default1.asp
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8. http://research.stlouisfed.org/wp/2002/2002-027.pdf
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12. Weston J. Fred, (1998): “Takeovers, restructuring, and corporate governance”, 2n edition
Prentice Hall, USA.
Executive summary
The WorldCom
WorldCom was started in 1983 by Ebbers as a long distance telephone company called Long Distance Discount Services and went public in 1989 through a merger with Advantage Companies, Inc. As a long distance carrier, LDDS purchased long distance capacity at wholesale from the major long distance carriers and resold it to the public, connecting calls between the customer's local telephone company and the recipient's telephone company. In 1995 the company changed its name to WorldCom.
Under Ebbers’ guidance, WorldCom grew steadily throughout the 1990s, chiefly through a number of successful and ever larger acquisitions of long distance companies in which WorldCom's common stock was used as currency. One of these acquisitions brought on board Scott Sullivan, who became WorldCom’s CFO. Sullivan worked closely with Ebbers on acquisitions and gained the reputation of being a whiz kid among telecommunication executives. With the passage of the Telecommunications Act of 1996 and the acquisition of MFS Communications Company for $12.4 billion, WorldCom was able to begin offering local telephone service to its customers.
In the end of 1998, WorldCom made its largest acquisition ever, purchasing MCI for $40 billion of WorldCom's common stock. At the time of the acquisition, MCI's revenues were more than two and a half times that of WorldCom's. The merger moved WorldCom ahead of Sprint to become the second largest telecommunications provider in the U.S., behind only AT&T.
During this period of acquisitions in the 1990s, WorldCom's revenues grew at a tremendous rate. From 1994 through the third quarter of 1999, WorldCom's growth in total income for each year compared to that of the prior year was more than a 50 percent increase in 16 of the 23 quarters! As might be expected, its stock price also soared, going from $8.17 in the beginning of 1994 to $47.91 at the end of the third quarter of 1999.
The Sprint
The Sprint brand has always stood for technological innovation, excellent customer service and creative marketing, but its story began with a small local telephone company in Abilene, Kansas. Sprint was founded by Cleyson L. Brown in 1899, the Brown Telephone Company quickly became a viable alternative to Bell, rapidly launching to local markets in Kansas and beyond.
Following the Depression years, the company reorganized as United Utilities, growing to become the second-largest non-Bell telephone company in America by the 1950s. In the 1960s, United Utilities introduced system wide advertising campaigns and created its first sales organization to market services through subsidiaries. In 1972 the company changed its name to United Telecommunications, and by 1976 this diversified corporation served more than 3.5 million telephone lines coast-to-coast and generated revenues exceeding $1 billion. By decade's end the company had installed its first fiber-optic cable and first digital switch, and in 1980 established UNINET as the world's third largest commercial packet data network. By the mid-1980s the company announced its entry to the deregulated long distance market. Domestic long distance service officially launched in 1986 under the Sprint brand name, with the nation's first 100% digital, fiber-optic network as the centerpiece of the plan. Over the next few years the company solidified its industry leadership and success through a series of high-profile technological advances. Sprint International then emerged in 1989 to promote the company's growing presence in the global marketplace. By 1993, the company provided service to more than 6.1 million customer lines in 19 states. In 1995, with its partners, Sprint acquired PCS wireless licenses in 29 major trading areas in the FCC's first auction. As the telecommunications industry experienced upheaval in the Act's wake, Sprint worked to find the right balance of risk and reward. Circumstances, including market conditions and regulatory hurdles, cut short some initiatives such as Sprint ION and an attempted merger with WorldCom.
The Takeover Process
This merger report can be identified based on three different processes like formulate, investigate and negotiate.
1. Formulate
WorldCom was acting in Long Distance Discount Services market where Sprint was local call provider. Ebbers a CEO of WorldCom had grown its revenues principally through acquisitions of other telecom companies, rather than through growth in operations. WorldCom has extended big-city local fiber while Sprint doesn't. By contrast, Sprint has extensive wireless PCS coverage and MCI WorldCom doesn't. During 1999 the telecom companies began to see the first signs of industry-wide trouble. The late 1990s had been boom years, as companies raced to add backbone capacity for voice and data, expecting a continuing increase in demand.
2. Investigate
The largest corporate merger between WorldCom and Sprint will create a telecommunications titan able at last to take on market leader. The combination of Sprint and MCI WorldCom will create the most dynamic, most creative, most growth-oriented company in the world. The new company--which will be called WorldCom--will claim about 35 percent of the long distance market, close to AT&T's roughly 42 percent, according to analysts' estimates.
3. Negotiate
After two weeks discussion WorldCom and Sprint agreed to merge and as per the agreement, each share of Sprint FON Group will be exchanged for $76.00 of WorldCom common stock, subject to a collar. In addition, each share of tracking stock unit Sprint PCS will be exchanged for one share of a new WorldCom PCS tracking stock and 0.1547 shares of MCI WorldCom common stock. The terms of the WorldCom PCS tracking stock will be equivalent to those of Sprint PCS and will track the performance of the company's PCS business. As well as the $115bn in equity MCI WorldCom will also assume $14bn in debt and preferred stock.
The Post Merger
A post merger analysis with respect to strategy reveals that, tactically and in relation to development, growth and profit. WorldCom Inc., the nation's second-largest long-distance telephone company, has agreed to acquire the Sprint
Corporation in a stock swap valued at $108 billion. The boards of both companies approved the merger. At this stage the deal was described as a partial success. It seems that it would be the largest acquisition in corporate history but it took long time to takeover battle for
Sprint, the nation's third-largest long-distance company. Sprint had been
discussing a merger with WorldCom for two weeks but received a $100
billion unsolicited offer from BellSouth, the Atlanta-based
regional Bell company, prompting WorldCom to raise its bid.
http://www.nwfusion.com/news/2000/0428mcisprintyes.html
