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VOD -- fyi



Thursday February 3 8:10 PM ET
Mannesmann, Vodafone Agree to Merger

Reuters Photo


By Paul Carrel

DUESSELDORF, Germany (Reuters) - Mannesmann AG's management laid down its
guns on Thursday and agreed to an 180 billion euro ($176 billion) merger
with Britain's Vodafone AirTouch Plc to create Europe's biggest telecoms
titan.

Following marathon talks called just four days before a record hostile bid
closed, the two European partners were poised to end hostilities as
Mannesmann's management board unanimously recommended a fresh, all-share
offer of 58.96 Vodafone shares per Mannesmann share.

The offer, to be put to investors, places an implied value on the German
group's stock of 353 euros per share and gives Mannesmann investors 49.5
percent of the combined group, rather than the 47.2 percent originally on
the table.

``We have agreed between us that Vodafone AirTouch will be making a revised
proposal to Mannesmann shareholders,'' Vodafone Chief Executive Chris Gent
told reporters at Mannesmann's Duesseldorf headquarters, adding that the
German group's management board was recommending the bid.

Supervisory Board Yet To Agree

But the deal, that ends a three-month battle for dominance of mobile
communications in Europe, has yet to be ratified by Mannesmann's supervisory
board, which includes top industrialists and employees.

The board held a three-hour meeting which broke up at 1700 GMT without
agreement. Gent said it would meet again on Friday.

Four members of the supervisory board will be offered seats of the Vodafone
Airtouch board as part of the deal,

Vodafone, already the world's largest mobile phone company, is poised to add
to its fold Mannesmann's 18.5 million customers to create a 54
million-strong global empire with interests stretching across 25 countries
and five continents.

``The merger of Vodafone Airtouch and Mannesmann is a combination of two
highly successful companies and management teams that will create one of the
world's leading telecommunications groups,'' Vodafone said. ``The merger
will be based on the principles of mutual respect and cooperation.''

Mannesmann's ambitious Chief Executive Klaus Esser will become deputy
chairman of the merged group after a vigorous campaign against Gent, during
which he argued that his strategy focusing on Europe and both fixed, mobile
and Internet businesses would deliver greater shareholder value.

But Gent just adopted the strategies Esser accused him of lacking, while
waving his company's global reach under Mannesmann investors' noses.

Esser, credited with creating one of Europe's most dynamic telecoms groups,
failed to get cash for his investors, but he managed to squeeze around five
extra shares out of Vodafone per Mannesmann share.

``If you create shareholder value, then you are remembered for it,'' said
David Stevenson, investment manager at Scottish Value Management, which has
stakes in both companies. ``Esser gave 350 euros as his target and managed
to talk up that value and won a few more percent. He gets credit for that.''

Bid Attractive, Yet Offers Value For Vodafone -- Analysts

Analysts said the new bid on the table, which works out at about $180
billion euros without debt, was both attractive to Mannesmann shareholders
and also offered value for Vodafone.

James Ross at ABN Amro in London said: ``It's a price Vodafone shareholders
will be more than happy to pay.''

Douglas Wight at Commerzbank in London said: ``When the bid was launched in
November, we advised Mannesmann shareholders to reject it on the grounds
that the value was too low for the business. We thought the strategy of
Mannesmann versus that of Vodafone was superior.

``The value of the bid has increased enormously since then to the point
where we fell that Mannesmann shareholders are now getting a reasonable
deal,'' he added.

But another analyst who declined to be named said the price paid may now no
longer offer value for Vodafone.

``I think it (the 49.5 percent stake) is extremely generous. I think it goes
to the point of excessive generosity. This is a very, very full price,'' the
analyst said.

Record Hostile Bid Nears End

Stung into action by Mannesmann's surprise acquisition of its domestic
arch-rival Orange Plc last year, Vodafone in November launched a record
hostile bid to secure prized joint ventures in Germany and Italy. Had the
hostile bid gone to the wire, it would have been unprecedented in Germany.

But both sides were under increasing investor pressure to secure a deal that
would ease and secure future restructuring plans, and frenzied speculation
of an agreement was fuelled by statements earlier that the two companies had
started talks.

Vodafone reiterated on Thursday it would demerge Orange, Britain's third
biggest mobile phone company, to appease regulatory concerns. It has been so
confident that it has not made the Mannesmann bid conditional on European
clearance.

But the European Commission has said it would study carefully how Vodafone
plans to divest the business, saying it was ``not necessarily good enough to
say you'll get rid of Orange in the UK, but also the way in which it will be
done.''

``As in all these cases, we have to look not only at the commitment to
divest where there is a market overlap, but also look at how it is divested
and who will have control over it,'' a Commission spokesman said on
Wednesday.

Germany's Acid Test

The deal was seen as an acid test of how open the German economy is and
whether the country is ready to concede foreign control of some of its
industrial jewels.

The success of Vodafone -- a mere teenager -- in winning one of Germany's
most venerable concerns is expected to unlock a wave of foreign interest in
German companies, particularly in banks and telecoms.

A famous industrial and manufacturing concern, Mannesmann has refocused on
telecoms over the past decade, building a wireless and fixed network. It had
already planned to split its engineering and telecoms divisions before
Vodafone pounced.

($1-1.024 Euro)


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