Vodaphone Slides

Vodafone AirTouch’s bid for Mannesmann

Mannesman & Vodaphone •  Jan 99: rumor that VD wants to buy MS –  Esser (MS) calls Gent (MS); Gent denies

•  Feb-oct: talks about cooperation •  Oct 19: rumors that MS wants to buy Orange –  Gent calls Esser: a more « constructive » route? –  MS-VD talks cancelled –  0.0965 MS share + 6.4GBP / orange share •  Takeover premium = 17%

–  MS share price drops from 154€ to 141.3€

Mannesman & Vodaphone •  Oct 22: Gent contacts Wargubrg & GS •  Nov 14: Gent makes offer to Esser –  43.7 VD shares per MS share (à 202€) •  9% premium

–  Esser finds it « inadequate » / fights it in court

•  Nov 19: Gent makes public offer –  53.7 VD share per MS share (à 232€) •  25% premium!

–  MS board advises sh. to reject the offer •  Says true price = 350€

the telecom business in 99 •  •  •  • 

mobile only vs triple play voice then data (3g, gprs, edge) GSM norm in europe / no norm in the US fast growth / low penetration rate

what are the economic forces conducive to consolidation?

Mannesmann’s reasons for acquiring Orange •  Gain presence in the UK •  Gain presence in mobile internet •  Synergies –  Cost savings –  Revenue increases due to bigger size –  Capex

Would merging with Vodafone be a better idea? •  Complementary geographical presences –  Mannesmann: Continental Europe –  Vodafone: UK, US, Japan

•  Complementary strategies –  Mannesmann: Fixed telephone, internet –  Vodafone: Mobile

•  Size •  Existing partnerships –  France, Italy

Did Mannesmann overpay for Orange?

Risk arb •  What is the probability that the deal goes through, as estimated by the market on dec 17? –  Assume that, if failure, MS and VD prices go back to their oct 21 levels –  Assume deal completed in 3 month –  Take risk free rate = 5.5%

Estimating synergies •  Using goldman sachs’ projections (ex 10) –  Assume WACC = 7.6%

Surplus sharing •  Take Goldman’s valuations of VD and MS •  What fraction of synergies do VD and MS shareholders get?

What is wrong with Goldman’s valuation?

Valuing target & acquiror

Surplus sharing •  Same estimates with a 13.5% WACC –  PV of synergies –  Value of Vodafone –  Value of Mannesmann

€14.8bn €48bn €52bn

•  What fraction of synergies do VD’s shareholders get?

Why did GS choose such a ridiculously low WACC?

Takeover defenses •  Why could the deal fail? •  Why is Esser fighting so hard?

Mannesmann, Dec. 1999: “It has a lot planned”

Vodafone’s reply: “Every Mann knows: If you want to grow, you need a good mother”

Mannesmann’s reply: “A hostile mother is the worst thing in the world”

•  Esser’s last defense –  Call a white knight: Vivendi Universal

The conclusion •  Jan. 2000: –  Vivendi announces joint-venture with Vodafone in the Internet business

•  Feb. 2000: –  New offer by Vodafone: Mannesmann is offered 49.5% of the new company –  Mannesmann accepts

The aftermath •  Orange is sold to France Telecom •  Other Mannesmann businesses are sold •  Esser accuses J.M. Messier of being “indecent and dishonorable” ⇒ Messier sues him

•  Esser accused of receiving $30m for accepting the deal ⇒  Sued by shareholders

•  Gent criticized for receiving $15m for completing the deal

Stock prices