| William Fish | ||||||
That Vodafone AirTouch succeeded in it’s takeover of German company Mannesmann is a story in itself. That it was also, at the time, by far the biggest underwritten transaction in Europe also made it remarkable.
No foreign firm had ever managed to gain control of a German company in a hostile bid before, though Vodafone did have on its side the fact that more than 60% of Mannesmann shares were held by UK and US companies.
Also at Vodafone’s elbow was a powerful network of banks that had already seen it through the previous year’s $10 billion acquisition of US telecom AirTouch.
On that occasion Vodafone called on Bank of America, Barclays Capital, Citibank Schroder Salomon Smith Barney and Goldman Sachs, along with ABN Amro, Greenwich NatWest, ING Barings, National Australia Bank, Toronto-Dominion and UBS.
With that degree of experience to draw on, when it came to the Mannesmann bid it knew where to turn. “They went back to the lead arrangers,” says William Fish, head of sales and trading, global loans, at Citi/SSSB. “Having done a $10 billion deal for the acquisition of AirTouch, and equipped with a strong bank group, it was easier to take that framework and that group of relationship banks and expand the amount.”
Despite the size of the deal, this was relatively straightforward, says Fish. “From a corporate finance perspective they didn’t reinvent the wheel.”
The added challenge compared with AirTouch came from the fact that it was cross-border and into Europe, rather than between the US and the UK, “which has always been a relatively friendly environment for companies to do business,” says Fish.
In the event, when Mannesmann finally agreed to the deal, Vodafone was able to issue a $5 billion bond and therefore scale the loan back to e25 billion. This was a slight disappointment to the banks that had raised e50 billion from the market.
“At the time e30 billion was a huge amount for the Eurobond market,” says Fish. “It was a time when deals were getting bigger. It was prior to the 3G auctions so telecom exposure was not such an issue and the market was very go-go.”
It was also easy to get banks interested in the deal because of its nature, as Fish explains: “Vodafone benefited from a strong group of international banks that were stood at the ready to provide capital, particularly for its strategic acquisition where the company was creating a pan-European franchise.”
Vodafone led the way in this regard for France Telecom, which later saw e70 billion committed in the sub-underwriting phase. Fish calls it a watershed transaction for this reason.
It also helped bump up fees across the market as two factors kicked in. Bank mergers meant capacity fell and deal sizes increased. So bank loan syndications in the Eurobond market have become more expensive.
“Larger deals have required companies, even ones with good ratings, to pay the market more in order to create capacity,” says Fish. “This has had a general knock on effect in the Eurobond markets more and that has caused pricing to drift upwards, particularly for acquisition related financing.”
