Mannesmann rejects Vodafone offer

The latest bid values Mannesmann 8211; a diversified industrial company that is also Germany8217;s biggest provider of mobile-phone services 8211; at 240 euros a share, an 18 per cent increase from Vodafone8217;s first bid of 203 euros a share, or 103 billion euros, and a 54 per cent premium over Mannesmann8217;s share price on October 18, before the German company made its offer for Orange Plc, a British cellular-phone company.

If Vodafone, which is based outside of London, succeeds in taking over Mannesmann, based in Duesseldorf, it will be the largest takeover in history. Vodafone shareholders are beginning to accept the idea of the acquisition, but some don8217;t think the company can afford to raise its bid much higher.

Esser continued to insist Mannesmann could deliver better returns to shareholders if it remained an independent company. A takeover of the company, he said, quot;would still be wrong to pursue.quot; Esser argues that Vodafone8217;s wireless-only strategy is inferior to Mannesmann8217;s more ambitious plan to offer both cellular-phone and fixed-line services across Europe.

At a London news conference Friday, Vodafone8217;s chief executive, Chris Gent, insisted the latest proposal, which would be presented directly to Mannesmann8217;s shareholders, was final.

Mannesmann8217;s supervisory board said it supported management8217;s decision to reject the Vodafone bid but stopped short of officially rejecting it before studying the offer. The supervisory board plans to meet again November 28 to quot;discuss the future development of the takeover attempt.quot;

Vodafone remains hopeful Mannesmann will come to the negotiating table before it officially approaches Mannesmann shareholders with a formal takeover offer, which could come in the next few weeks. Meanwhile, Mannesmann and its advisers are girding for a battle that could last up to three months. The company plans to argue that its current strategy is working, noting that Mannesmann8217;s stock doubled several times over the past five years.

Esser and other senior Mannesmann executives are planning to embark on a roadshow within a week8217;s time to meet major shareholders; about 60 per cent of Mannesmann8217;s stock is held outside Germany. Esser is expected to argue that Mannesmann and Orange can deliver far higher returns than a combined Vodafone-Mannesmann. Roughly half of Vodafone8217;s European operating cash flow growth comes from businesses controlled by Mannesmann, including wireless providers D2 in Germany and Omnitel Pronto Italia in Italy. While considerably smaller than Vodafone, Orange generates more revenue per user and has less customer turnover, or quot;churn,quot; than its rival.

Since Vodafone made its first friendly proposal a week ago, Mannesmann executives have been restricted from fully pleading their case to shareholders because of the effect of British takeover laws on the planned 33 billion 32 billion euros acquisition of Orange. Today, most of those restrictions fall away. quot;Our shareholders have wondered why we haven8217;t made our case more strongly,quot; said a person close to Mannesmann. quot;Now we8217;ll be free to talk.quot;

For now, Mannemann doesn8217;t plan to seek a so-called white knight, a firm that offers a friendly merger with a company that is the target of a hostile bid. The German giant, however, has held exploratory discussions with France8217;s Vivendi SA to see whether the French media and telecom company could quot;become a component of Mannesmann8217;s defense strategy,quot; said a person familiar with the situation. But Vivendi is deemed too small to be a full-fledged white knight, the person added. A Vivendi spokesman couldn8217;t be reached for comment Sunday.

Vodafone shareholders in Europe and the US are starting to accept a takeover of Mannesmann, even though it8217;s shaping up to be a difficult investment. Many shareholders say they want the deal to go through because Vodafone needs a strategic combination to survive in an increasingly competitive global industry. But among the investors who own shares of both companies, many don8217;t want the price to go too much higher because shares of the newly merged company could have serious difficulties absorbing the deal.