||Headline: The bid
that couldn't fail
Date: March 2000
Author: Marcus Walker
It was late on Wednesday February 2, and Canning Fok was
getting in the way. The chief executive of Hong Kong
conglomerate Hutchison Whampoa was making his presence
felt on the 21st floor of Mannesmann's headquarters, a
tall office block in Düsseldorf overlooking the
Rhine, where the protagonists had gathered for the final,
fraught scene of a three-month takeover battle.
Fok was convinced he could help broker a peace deal
between hostile bidder Vodafone AirTouch and its prey,
Mannesmann, in which Fok's group held an 8% stake. But
the chairman of Mannesmann's executive board, Klaus
Esser, had already seen the writing on the wall. He had
decided the previous day to agree takeover terms with the
English raiders from Vodafone - a humiliating defeat in
the stock market was his likely alternative.
Some of Esser's advisers from investment bank Morgan
Stanley Dean Witter saw that the slim, trim German needed
privacy to drop his defences and strike a deal. They took
the well-meaning Fok aside, sat him down and offered him
coffee. Esser was finally alone with his adversary,
Vodafone chief executive Chris Gent.
Esser and Gent took less than 90 minutes to overcome the
differences that had kept them at war for the previous
100 days. Then they instructed Esser's closest adviser
throughout the struggle, Dietrich Becker of Morgan
Stanley, to list the points they had agreed. Most
important, Mannesmann would agree to a takeover by
Vodafone that gave Mannesmann's shareholders 49.5% of the
combined company's stock.
The full agreement, covering governance, group structure
and commercial strategy, would be turned into a formal
contract by the two sides' bankers and lawyers, and
presented for approval to Mannesmann's supervisory board
the following afternoon - or so Esser understood. Gent
left the Mannesmann tower block at 1:15am to fly home for
a night's rest, his work done and Mannesmann's surrender
But submissions don't always end bloodshed, just as
Genghis Khan's Mongol warriors couldn't refrain from
butchering the men, women and children of conquered
citadels during their romp through central Asia. The
demoralized members of the Mannesmann camp, though spared
the sword, were shocked by the bruising style of
Vodafone's victorious bankers from Goldman Sachs and
Warburg Dillon Read as they swaggered into
"They were ignoring the human toll," says a weary
defence adviser from Morgan Stanley. "It got very ugly,
very aggressive. They should treat people better."
After Gent's departure, the lawyers prepared the text of
an agreement. At 5:30am on Thursday they faxed the draft
to the UK homes of Vodafone advisers Warren Finegold of
Warburg and Simon Dingemans of Goldman Sachs, who were
due to fly to Germany later that morning.
This was the first time that several of the advisers of
the two companies had dealt with each other face to face.
Talks between the Mannesmann and Vodafone camps, outside
the rare direct meetings between Esser and Gent, had been
handled mainly by each side's principal adviser: Becker
of Morgan Stanley, and Goldman's Scott Mead. Both
investment bankers had been tough and uncompromising
throughout their three-month dialogue but they had built
up a relationship of respect.
On Thursday morning, mistrust was more evident. Finegold
and Dingemans infuriated the Mannesmann advisers by
saying there was no time to negotiate the formal
contract: instead, the two companies should prepare a
press release about the main points of the takeover. To
the Morgan Stanley contingent, a mere press release fell
well short of guaranteeing Mannesmann's interests. Above
all, Esser had extracted a pledge from Gent not to break
up the German company.
Noon passed, and Warburg and Goldman were still
rejecting an ironclad agreement. The Morgan Stanley team
knew that Mannesmann's supervisory board meeting, due at
2:30pm, would refuse to proceed with the agreed takeover
unless there was a formal contract.
While his colleagues seethed at their rival advisers'
foot-dragging, Becker sought out his familiar
interlocutor, Mead. Becker reportedly warned him: "To
have members of your team suffering from increased levels
of hormonal activity will not make this day a success for
From Finegold and Dingemans' point of view, however, it
was Mannesmann's advisers who were being unreasonable by
expecting them to commit Vodafone to a 20-page legal
document with only a couple of hours' time for
negotiation. They backed down only when the 20 pages were
cut to two pages.
Mannesmann's supervisory board got the formal agreement
it wanted, albeit in abridged form. It was in
mid-discussion when company employees burst in with
inflammatory news. A Goldman Sachs banker was demanding
the heads of half of those in the room.
Goldman managing director Alex Dibelius had reportedly
said to Becker: "Look, we're paying e185 billion for this
company and we want control now. Every member of the
supervisory board on the capital side should tender their
resignations." An astounded Becker, referring to the
pillars of Germany's corporate establishment gathered in
the boardroom, replied: "Are you serious? Do you really
want me to go in there and tell them that?" "That is
exactly what we want," retorted Dibelius.
Reports of this conversation triggered uproar in the
boardroom. Esser saw he had to take control to stop the
poisonous mood from undermining the agreement. He told
Gent, who had returned to the scene, to impose order on
his marauding troops. "Goldman Sachs and Warburgs behaved
out of control," recalls a still furious M&A adviser
from Morgan Stanley. And the view from Vodafone's
bankers? "Morgan Stanley were very emotional," says one,
Betting on Orange
Before this story became a stand-off between rival
investment banks, it was a struggle for control of a
telecoms company. From November 19 1999, Mannesmann found
itself subject to an unsolicited tender offer to its
shareholders. Vodafone's justification for launching this
assault was that the two companies were logical partners,
but that in the preceding month Mannesmann had abruptly
hatched plans to thwart their natural union.
Mannesmann's sin, according to this account, was
twofold: it had made a tender offer to acquire Vodafone's
competitor in UK mobile phone services,
Orange. And it had ignored Vodafone's request to stop
and consider alternatives. "Mannesmann never came and
talked to us about what we could offer to his
shareholders, compared to what Orange could offer," says
Dingemans of Goldman Sachs.
On October 20, Gent called Esser and asked him whether
press speculation about a Mannesmann-Orange deal was
correct; the two bosses agreed to meet to see what
Vodafone could propose instead. But later that same day,
Esser signed an agreement with Orange's controlling
shareholder, Hutchison Whampoa, and called Gent back to
tell him their meeting was now superfluous.
Mannesmann's spin on history is rather different. It
sprang no surprise attack on Vodafone by marching into
the UK market and buying Orange. Mannesmann had been open
with Vodafone throughout 1999 that it was following a
strategy of expanding its footprint in major European
markets, and that meant buying in Britain. Mobile
operator One2One caught Mannesmann's eye during 1999, but
ended up in the hands of Deutsche Telekom. Orange was a
stronger performer anyway, and Mannesmann's interest in
it was of long standing. In autumn 1998, Esser hired
Merrill Lynch to advise on acquiring Orange but Hutchison
Whampoa didn't want to sell. The Germans courted Hutch
persistently for a whole year.
Kinzius, Mannesmann's head of international telecoms
strategy, says: "Orange was our ideal partner for two
reasons. We had always focused on quality assets, and
Orange was outstanding; and we realized that the Orange
brand could provide for growth even outside the UK. We
never gave up asking [Hutchison]. When suddenly in
October 1999 we got the feeling that there was an
openness to selling, we moved really quickly."
When Mannesmann began looking into the UK, it decided to
get to know the locals. Among its meetings was an
introductory lunch on January 15 1999 at London's
fashionable Pont de la Tour restaurant. Present were
Esser and Kinzius for Mannesmann and Gent and Julian
Horn-Smith of Vodafone. The conversation was what
companies call conceptual, but Kinzius says one point was
concrete: "We made it clear that the UK was an important
market for us." At this time, Vodafone was not a direct
partner of Mannesmann in any telecoms venture, although
both had relationships with France's Vivendi.
But that same day, Gent entered into a merger agreement
with Californian mobile-phone company AirTouch, which
owned stakes in Mannesmann's main telecoms businesses: D2
and Arcor in Germany, and Omnitel in Italy. Within hours,
Vodafone had gone from complete stranger to a member of
Mannesmann's innermost circle. And the uninvited guest
had a large appetite.
For years, Esser had enjoyed happy relations with the
people from AirTouch. He was also a close ally of
European telecoms chiefs Jean-Marie Messier of Vivendi
and Roberto Colaninno of Olivetti, kindred spirits who
had reformed conglomerates and taken on Europe's telecoms
Esser formed no such rapport with his newly acquainted
English partner. In 1999, meetings with Gent were rare.
What discussions there were suggested to Esser that
Vodafone was narrowly interested in wireless telephony
over wireline, and had little consciousness of the
importance of the internet. In contrast, says one of
Esser's advisers from Merrill Lynch, Gent's competitor
Hans Snook of Orange "was much more sympatico on the
Despite the cool relationship, Mannesmann had fallen
into Vodafone's sphere of influence. Gent's adviser on
the AirTouch merger, Dingemans of Goldman Sachs, says:
"Vodafone had in mind that the two groups [Vodafone
AirTouch and Mannesmann] should be together. I don't
think there was any definite timeframe."
Mannesmann, however, had no desire to lose its
independence. For sure, Esser's stated managerial goal
was increasing shareholder value; but most managers do
not build up high-flying international companies in order
to sell them. Esser aimed to maximize shareholder value
by winning the contest to build the top European telecoms
business, beating Vodafone, Deutsche Telekom and all his
other rivals. He had a knack of perfectly aligning the
interests of his shareholders with the jobs of his
employees and the triumph of his company.
Esser is often described as ultra-rational, but he has
also shown a competitive streak and a gambler's instinct.
He knew that swooping on the UK market risked triggering
a war. It was clear to him that a Vodafone-Mannesmann
link-up was attractive to Vodafone, with its patchy
European footprint, even if in his view Mannesmann had
little to gain from it. On October 20 Esser bid for
Orange, and bet that his group's dynamism would quickly
lift it beyond Gent's reach.
Now or never
Mannesmann's plucking of Orange left Vodafone trapped.
Mannesmann's share price was temporarily squeezed by its
premium bid for Orange, but as time passed and the German
group's valuation rose, Vodafone would forfeit its
European ambitions. It would be stuck as a
minority-participation investment trust in all major
markets but the UK. Vodafone had to act now or for ever
hold its fire.
Dan Dickinson, head of European M&A at Merrill Lynch
and an adviser to Mannesmann, says: "Mannesmann buying
Orange really put Vodafone in a corner because it exposed
Vodafone as having only a series of minority stakes.
Their window of opportunity was to act right away."
On October 22, Gent hired Goldman Sachs and Warburg
Dillon Read to help him with his options. Goldman's
leading advisers to Gent were Dingemans and Mead; the
Warburg team leaders were Mark Lewisohn and Finegold.
They all knew each other and Vodafone well. Dingemans and
Finegold had worked for both banks. Unlike Mannesmann's
advisers, they formed a cohesive group with a can-do
The first get-together, held at Warburg's offices on
Finsbury Avenue, London, discussed how they could break
Mannesmann's Orange deal. The answer was they couldn't.
"It was a fait accompli," says Dingemans.
"Instead we had to work out how to bid for Mannesmann and
get Orange out again."
A hostile cross-border takeover of the second-biggest
company in the Dax share index, carrying a risk of
political and trade-union backlash, might have daunted
many advisers. But Dingemans says: "When we first met,
there was a determination that a way had to be found.
From the outset, I don't think people doubted that it
could be done. Once you took a look at Mannesmann's
shareholders, you saw that it was quite unusual for a
German company. Our feeling was that German capital
markets had been opening up for some time, and that
politicians would come to see that this was an issue for
Lewisohn says the two banks' sales forces talked to
investors to test the idea out. "It was obvious that
investors were strongly receptive." His Warburg colleague
Finegold says the challenge was time: "It took four
months to plan Hoechst-Rhône Poulenc, and that was
a friendly cross-border deal. This deal was hostile, and
there was a ticking clock."
In the next three weeks, the bankers raced through their
technical preparations, studying the German takeover
code, how to dispose of Orange, how to get EU approval,
and how to structure the offer. They presented their
proposed course of action to Gent's board, and on Sunday
November 14 Gent and Horn-Smith travelled to
Düsseldorf, offering 42% of the combined group and
e203 per Mannesmann share. Esser and Kinzius gave them
short shrift. The following Friday in London, Gent
launched a hostile stock offer worth e240.
Vodafone tried hard to hire a German bank, to help
market its tender offer among local retail investors and
give the bid a German supporter. Deutsche Bank would have
faced a conflict of interest, but no other firm with an
advisory business would say yes either. The accidental
result, from which firms like Deutsche and Dresdner
Kleinwort Benson can only lose, was a demonstration that
you don't need German banks to do German M&A
Esser's gamble in acquiring Orange had sparked off the
very thing he had feared since January 1999: a takeover
showdown with Vodafone. But the Mannesmann camp insists
this does not make the entire contest a gross
miscalculation on Esser's part. Kinzius says: "We had to
develop our strategy. We were conscious that there were
potential Vodafone issues, but what was the alternative:
just sit there and no longer develop your strategy?" John
Hahn, head of European telecoms coverage at Morgan
Stanley, concurs: "Klaus realized he had to get scale.
His alternative was just sitting there for fear of
provoking Vodafone and watching someone else buy Orange,
and in the end getting taken over because he lacked
Mannesmann's first defensive steps were clumsy. On
November 15, Kinzius attempted to play the man rather
than the ball. In an affidavit presented to the High
Court of Justice in London, he sought Goldman Sachs'
disqualification from working for Vodafone by claiming
that Goldman (a) had insider knowledge about Mannesmann
after working for the Düsseldorf group on a string
of recent equity and M&A deals, and (b) had promised
Esser on specific dates in March 1999 that it would not
advise Vodafone on a hostile takeover bid for
Unfortunately for Kinzius, he got his specific facts
wrong and had to retract his evidence. An angry Mr
Justice Lightman, the judge trying the case, boomed: "I
regard the placing of this evidence before the court as
totally disgraceful and unacceptable conduct" and sent a
humiliated Kinzius packing.
Mannesmann people genuinely believed Goldman reneged on
its promises. A source close to the German chief
executive says: "Esser is not a man given to
overstatement - if he says he had assurances, I would
believe him implicitly." Goldman got "a lucky let-off,"
says the source, because of Mannesmann's bungled
execution of its case. Goldman flatly denied everything.
Mannesmann's more orthodox defence efforts began little
better. Its first presentation to analysts in London was
a chaotic affair: a room prepared for 30 analysts filled
up with 150, and German executives bored them for four
hours with rambling, laborious presentations.
Vodafone's bankers found that they had the first month's
media airtime virtually to themselves: "That gave us a
momentum which we never lost," says Finegold. Mannesmann
missed the opportunity to land big punches with the
publication of its defence document in mid January by
saying nothing that hadn't already dribbled out piecemeal
during December. And the besieged company did its
credibility few favours by repeatedly shifting its growth
estimates and self-valuation.
Curiously, Mannesmann had been preparing to defend
itself against takeover since October 1997. Rumours of a
hostile bid prompted Mannesmann to commission defence
strategies from an undisclosed investment bank. After
Vodafone pounced on AirTouch in January 1999, Mannesmann
hired Morgan Stanley to make further defence
Unhelpfully, Esser declined to give the bankers any
information about the company beyond what was in the
public domain. When a real takeover bid arrived, the
defence advisers began again from scratch, using the
company's proprietary information and the unanticipated
acquisition of Orange.
Once the contest was under way, Esser's main advisers
were Colin Roy of Merrill Lynch plus a Morgan Stanley
trio - Becker, who focused on Vodafone; John Hahn, who
worked on an internet alliance with AOL; and Paulo
Pereira, who handled Mannesmann's most potent escape
plan: Vivendi. Among others involved were Merrill's
Dickinson on defence strategy and Olivier Perraudin, who
had originated the Orange deal, on telecoms advice.
Relatively small teams from JP Morgan and Deutsche Bank
played niche roles.
Advisers to Vodafone and insiders at Mannesmann detected
a marked difference in attitude between Mannesmann's two
main investment banks. One adviser to Gent says: "Merrill
Lynch were much more pragmatic about getting a deal done
and recognized much earlier the opportunity to get
something for Mannesmann shareholders. Morgan Stanley
seemed to take a lot longer to recognize the writing on
Sure enough, Merrill Lynch was less prone to thinking in
terms of victory or defeat. But Morgan Stanley bankers
were grittily determined to get their client off the hook
and scorned any suggestion from Merrill that Mannesmann
might want to settle. Morgan Stanley's zealous pursuit of
independence for Mannesmann stemmed from two motives.
One, Morgan Stanley could not stomach losing to Goldman
Sachs, the firm's deadliest rival for the number one spot
in European M&A.
Two, Morgan Stanley's Becker had assured Klaus Esser in
October that he could safely buy Orange: Vodafone would
have great difficulty in mounting a raid. This confirmed
Esser's instinct that there was no price at which a
takeover made sense for Mannesmann and Vodafone
shareholders alike. But Becker had something else in
mind: the scope for robust defence ploys. He did not
realize how averse Esser would be to erecting barbed
The French connection
Esser believed in his own company's superiority.
Mannesmann boasted managerial control of most of its
telecoms businesses. Mannesmann focused on Europe, the
world's fastest-moving region for telecoms, and with both
fixed-line and wireless telephony operations in its
empire it aimed for revenue synergies from integrated
In contrast, Vodafone's geographically diffuse portfolio
disguised a lack of majority-controlled operations in any
G7 economy but the UK. And the fact that it was limited
to wireless telephony meant it couldn't supply bundled
services. But Esser saw that international equity
investors had various motives for accepting Vodafone's
bid, from belief in the combined company's global
presence to short-term profit from the offer premium, to
fear of falling share prices if the bid failed.
Whatever arguments Mannesmann used to show how good its
growth prospects were, Vodafone embraced - adding that
the two companies together would be better still.
Morgan Stanley knew that Mannesmann had to present the
market with growth opportunities investors would lose if
they went with Vodafone. The most powerful option was a
deal with Vivendi, the French telecoms, media and
environmental services conglomerate.
Mannesmann's failure to reach a deal with Vivendi was
the pivotal moment in the contest. Afterwards, the
relentless rise of Vodafone's stock ensured victory for
the British group.
Adding Vivendi's telecoms interests to Mannesmann's
would have created the first genuinely pan-European
player in the industry, controlling major and dynamic
businesses in Europe's four biggest economies: Germany,
France, the UK and Italy.
Kinzius says: "A potential transaction with Vivendi was
very attractive for us as it fitted exactly our strategy
of European, integrated, controlled stakes."
When talks began in the week before Christmas,
Mannesmann had eyes for Vivendi's 44% stake in landline
telephone operator Cegetel, to add to its own 15%
participation. Cegetel in turn controlled mobile operator
SFR. Unfortunately, Vivendi's other partners in Cegetel -
SBC and British Telecommunications - had rights of
refusal which meant that Mannesmann had to buy Vivendi to
get at its telecoms stakes.
Mannesmann's two main investment banks were divided.
Morgan Stanley believed wholeheartedly in the Vivendi
project: if the French group would sell itself to
Mannesmann, the German company would escape Vodafone's
clutches, or at a minimum shoot up in value until it
became the majority partner in any merger talks. Pereira,
the Portuguese banker who heads European telecoms M&A
at Morgan Stanley, says: "The concept was to create a
highly rated stock that would run away from Vodafone by
providing superior value."
Merrill Lynch was more sceptical: Vivendi was a
conglomerate with much larger non-telecoms businesses
than Mannesmann had, and it was playing hardball in the
negotiations. Was a merger commercially justifiable, or
just a blatant defence tactic? At best, for the Merrill
Lynch team, talks with Vivendi could be used to extract
better terms from Vodafone if Mannesmann faced
Kinzius was aware of the dilemma. "We had to be able to
tell the right story to the market. The last thing we
wanted to do was to make an offer that people thought was
desperate and defensive."
The more hawkish bankers from Morgan Stanley were
determined to bag their acquisition and see off Vodafone.
"The Merrill people were always a bit more weak-kneed
than we were," says one member of the Morgan Stanley
team. "They didn't see the power of the Vivendi deal.
They looked at Vivendi and saw a big sewage business."
Morgan Stanley, in contrast, saw a group that could be
pared down to its telecoms and media parts. But in
practice, getting this deal proved tough.
Vying for Vivendi
Back in the autumn, before Vodafone launched its bid for
Mannesmann, Vivendi's chairman, Jean-Marie Messier, had
set a date of January 29 2000 to present his board with a
choice of strategic options. The Anglo-German takeover
contestants were, by pure coincidence, two of Messier's
dialogue partners about possible alliances. In December,
these parallel talks took on a new urgency: Vivendi's
choice of either Mannesmann or Vodafone could decide
their takeover battle.
Vivendi faced a double risk if it sided with Mannesmann.
First, Vodafone might win anyway. Then Vivendi would lose
its deal, plus the chance to extract a deal with Vodafone
from a strong bargaining position.
Second, Vivendi feared that Mannesmann might use it as a
stalking-horse to wring improved terms from Vodafone.
Even if Mannesmann was sincere in seeking a Vivendi deal,
it would be obliged to listen to a raised offer from
Vodafone. "We were unable to ease Vivendi's fears on this
point," admits Becker. Because of these risks, Vivendi
would only accept a transaction that met its terms.
In the first week of 2000, Vivendi and its adviser
Lazard worked intensively with Mannesmann and Morgan
Stanley to hammer out a complex merger. The plan, which
was never disclosed, was to create a French company in
law, with management equality and two headquarters: all
telecoms operations would be run out of Düsseldorf,
and all media and internet operations would be managed
from Paris. The remaining businesses of both Mannesmann
and Vivendi, from steel pipes to sewerage, would be spun
And the name for this potential powerhouse of the new
European economy? "Orange" - adopting the popular brand
of Esser's recent UK acquisition, but pronounced in the
This Orange writ large would issue a brand new stock to
shareholders of both Mannesmann and Vivendi. The terms
demanded by Vivendi would have given its shareholders 36%
of the new entity. Mannesmann went as far as offering
34%. Other differences concerned the timetable for
Vivendi to dispose of its large water and sewerage
business, and some points in the governance agreement.
The gap was surely narrow enough for a compromise to be
reached. Yet in mid-January, it had become an
Pereira says: "By the weekend of January 22 to 23, it
was apparent that we were not going to get a deal done."
Mannesmann was not willing to accept the terms on which
Vivendi was willing to do a deal. Mannesmann's Kinzius
says: "We made the best offer we felt we could."
Mannesmann's story is that its reasonable offer met with
a Gallic shrug, and that to concede more would have given
away more value than it could justify to its
But this explanation is mysterious, given that the
outstanding disagreements were small. How much extra
would Mannesmann have had to move to convince Jean-Marie
Messier to side with them and not Vodafone? A source
trusted by Messier answers: "Not much. We were very
The missing element, he says, was Esser. "What was
needed was the perception that Klaus Esser was really
behind this deal. But [the Mannesmann negotiators] were
in two minds, because they felt they had given away too
much under pressure from Vodafone."
Besieged chief executives on roadshows often encounter
polite and friendly responses from investors. At times,
they start to believe their own story: that the market
wants them to stay independent. The reality of takeover
bids is that independence is the least common outcome.
Statistically, predators tend to win unless a white
knight appears. But a part of Esser believed he could
convince the market to reject Vodafone's mega-premium bid
and let Mannesmann continue as before. Vivendi, with its
high asking price, was dispensible for him.
Vivendi found that the Mannesmann boss was difficult to
engage in the critical negotiations. Esser was travelling
the world, exhaustively meeting his shareholders
one-on-one, trying to coax them into rejecting Vodafone's
bid. In between his global roadshows, he would dip into
the talks with Vivendi: his physical burn-out was
obvious, and at important stages he was unavailable.
Vivendi found, to its frustration, that no-one besides
Esser had the authority to make even minor decisions for
Mannesmann, not even Kinzius whose job was to coordinate
the defence advisers. Esser's style was to be alone at
the top of his company.
Without Vivendi, Mannesmann succumbed. Would it have
survived if Esser had clinched a deal with Messier? It is
impossible to say definitively whether Mannesmann
shareholders would have chosen Vodafone's premium or an
Orange future. But Vodafone adviser Dingemans comments:
"Of all the propositions [Mannesmann] bandied about, a
deal with Vivendi was the most worrying."
In contrast to Mannesmann's centralism, Messier found
interlocutors from the more informally run Vodafone who
had authority to negotiate, even when Gent was away
lobbying investors. In December, Vodafone dispatched a
team led by Arun Sarin, former AirTouch boss and head of
the group's US interests, to find out what form a deal
with Vivendi could conceivably take. And in January,
Horn-Smith was frequently in Paris to flesh out the
alliance that Messier would eventually recommend to his
The pact was announced on January 30, and to a neutral
eye involved Vodafone presenting Vivendi with three large
gifts. The UK company promised Vivendi half of
Mannesmann's 15% stake in fixed-line venture Cegetel;
this turned Vivendi's existing 44% into majority control
while weakening the future Vodafone/Mannesmann combine's
presence in France.
Vodafone also agreed to form a 50:50 joint venture with
Vivendi called Multi Access Portal (MAP), to provide an
internet service accessible from computers, televisions
and mobile phones - even though Vodafone brought more
than three-quarters of the potential customers to the
table. And Vodafone promised not to build any stake in
Vivendi for three years without Vivendi's approval, a
concession Esser must have envied.
The UK group's advisers argue that this package, in
particular MAP, has inherent commercial attractiveness.
Perhaps so, but the terms imply that Vivendi had the
upper hand in talks, and that Vodafone was eager to
achieve an Anglo-French entente it viewed as integral to
winning Mannesmann. The irony is that by the last days of
January this deal was unnecessary for blocking the
creation of mega-Orange.
Effectively, Vivendi must have convinced Vodafone that
its discussions with Mannesmann were still live after 23
January, when Pereira testifies (and the Vivendi camp
agrees) that an impasse was clear.
Did Messier milk Vodafone for all it was worth? One
adviser to the British company argues that with 44%,
Messier had effective control of Cegetel anyway, and says
pointedly that the 50:50 internet venture consists merely
of a letter of intent.
Messier is unlikely to tolerate backsliding by Vodafone
on MAP: a pan-European internet portal is the closest
thing the French group possesses to a bright future.
Messier knows all too well that he has missed the boat on
telephony. In the five years since he took charge,
Vivendi - formerly the debt-riddled
Générale des Eaux - was not transformable
quickly enough to join the consolidation race in European
telecoms. Vivendi's conglomerate stock was never valuable
enough to buy prime telecoms assets like Orange, and
Messier was forced to sell off stakes in his domestic
telecoms businesses, Cegetel and SFR, for lack of
But a new generation of M&A plays, linking telecoms
with media and internet services, is just beginning, and
with assets like the media company Canal Plus and the
planned MAP, Messier believes he has better prospects as
a content provider than as an owner of pipes. Indeed, the
pipes - Cegetel and SFR - may lose their attraction for
Vivendi before long. If and when the French company
admits it can't win at the European telecoms game, there
may be an almighty fight over its telecoms assets between
Vodafone and Cegetel's other main investor, BT.
Writing on the wall
Even if Vodafone didn't need its generous agreement with
Vivendi to prevent the doomed Vivendi-Mannesmann merger,
the announcement of the alliance on January 30 gave
Vodafone a psychological boost. The market believed that
Vodafone held all the trumps.
It was the market's reaction on January 31 and February
1 that persuaded Esser he had to change course or lose.
Previously, he had steadfastly believed that Mannesmann
shareholders were best served by sticking with him: he
would give them operational and stock growth in the
coming year that would eclipse the instant profit
Vodafone was dangling in front of their noses.
That was the thinking behind his seemingly haughty
demand that a Vodafone takeover should give Mannesmann
shareholders most of the combined group. Given one more
year, Esser convinced himself, Mannesmann would
outperform Vodafone until any merger would have to be on
a 60:40 basis in the German company's favour. Bringing
that sense of superiority into the present, and
discounting it slightly for uncertainty, left a figure of
Now, however, Esser sensed defeat. Mannesmann's German
and US shareholders, formerly more supportive than UK
institutions, which tended to own more Vodafone shares,
were telling the company that although it was good, it
would be better still with Vodafone.
Many German institutions were selling into the market
where the risk arbitrageurs at investment banks and hedge
funds had picked up an estimated 10% of Mannesmann's
And Esser had run out of room to dismiss Vodafone's
premium. The offer's value had virtually reached the e350
share price Mannesmann had named on December 8 as its
fair value. Was that a tactical blunder for a company
whose defence was based on its immeasurable growth
prospects? A defence adviser says: "It is hard to put a
fair value on such businesses at any one time. The
problem is that in the face of a bid you have to do just
that. At the time, e350 was reasonable number. But the
problem was that the market was behaving in an
unreasonable way: it defied gravity."
Already on January 30, Esser had dropped his merger
terms to 52% of the combined group. The next day, when
the Vodafone-Vivendi pact was revealed, Gent suggested
Vodafone could offer just under 50%.
Esser took soundings from his shareholders and board
members. The takeover contest had focused the entire
financial world's attention on the growth potential of
wireless telephony, especially for carrying the internet.
The telecoms sector had been dramatically re-rated
upwards. Voices in the marketplace said: don't spoil it.
If the bid failed, both companies' stock would fall, at
least for a while. While Esser's defence strategy
promised long-term stock growth, institutional investors
also had the first months of 2000 to worry about.
On February 2, with the hostile bid worth nearly e350
per Mannesmann share, Esser picked up the phone and asked
Gent to come to Düsseldorf that night. Over the
Rhine, the white flag was flying.