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Wednesday, 6 June, 2001, 08:30 GMT 09:30 UK
When takeovers become personal
Vodafone's takeover of Mannesmann was Germany's first hostile takeover
Vodafone's takeover of Mannesmann was Germany's first hostile takeover

By BBC News Online's Orla Ryan

The Italian government has sparked a row by attempting to block the takeover of one of its utilities by a French electricity giant.

In this case, state-owned Electricite de France (EdF) has bought stakes in electricity companies around Europe.

But, argue its detractors, it is virtually impossible for a foreign company to compete with EdF on its home turf.

Some times the planning is wrong, the objectives are wrong, then when it doesn't work out, people talk about cultural difficulties

Professor Freek Vermeulen, London Business School
The row over EdF highlights the contentious nature of cross-border mergers and acquisitions in the newly liberalising European markets.

With EdF, there are two factors at play.

The first is that France has been slow to open its own electricity markets to foreign companies at the same time as EdF has been searching for acquisitions overseas.

French connections: London Electricity  is owned by EdF
French connections: London Electricity is owned by EdF
Secondly, EdF not only enjoys a monopoly in its domestic market but also state ownership, which allows it a comfort level not enjoyed by many of its competitors.

The Italian government has quickly introduced measures designed to lessen EdF's chances of success with the Treasury Minister Vincenzo Visco declaring it "unacceptable to let a player with a rigged hand of cards join the game."

"We cannot permit a non-listed company that belongs to the French state to launch a takeover of an Italian company," he added.

National pride

The Italian position is not unique.

Most governments are reluctant to see their corporate treasures fall into foreign hands.

The Colosseum in Rome
The Italian governments wants to protect corporate treasures as well as national ones

In the UK, chemical company Courtaulds was taken over by Dutch chemical company Akzo Nobel, British Steel merged with Hoogovens to form Corus, ICI offshoot Zeneca merged with Astra and Rover fell into the hands of BMW.

"If it was a national company owned by the state, it is very visible that it gets acquired," London Business School's Professor Freek Vermeulen said.

The blow is worsened when it is viewed that the favour cannot be reciprocated.

News that Vodafone was to take over Mannesmann prompted angry column inches in the German press.

Given that German companies had made several incursions into UK markets - notably BMW and Rover - the German response was surprising.

The reaction can in part be explained by the differing corporate cultures in the UK and Germany - this was Germany's first hostile takeover.

Even though some economic barriers had fallen, and a hostile takeover was inevitable, it still carried the potential to shock.

However, the idea that European countries or even one country in particular are unusually vulnerable to predators is not one that bears up under scrutiny - at least on a global scale.

European players

Western European countries are by far the most active global bidders outside their region, according to an analysis of cross border mergers & acquisition by KPMG corporate finance.

Last year, the UK made acquisitions to the value of $337bn, an increase of $153bn from the previous year. The next most acquisitive countries were France with $137bn, the US with $136bn and Germany with $62bn.

Germany attracted the most inward investment - partly because of the Vodafone/Mannesmann takeover. It was followed by the US, UK and Canada.

Mannesmann's Klaus Esser fought to keep the company in German hands
Mannesmann's Klaus Esser fought to keep the company in German hands

Ten out of the 30 largest world-wide deals saw Europeans buying into North America.

But these deals have a mixed track record and speculation remains that this is due to cultural differences.

One year into the Vodafone/Mannesmann deal, and the two companies are reputedly still learning to live with each other's differences in their Dusseldorf headquarters.

It is here that the differences move from the concrete political facts to the personal.

Vodafone has put Mannesmann's art collection up for sale, stopped sending birthday cards to staff and ended the tradition of champagne Christmases, according to recent reports.

Cultural scapegoat

Opinions vary as to how important these differences in style, manner and even nationality are to the success of a merger.

"Sometimes companies also use cultural differences as a scapegoat, as an excuse why it went wrong. Mergers in general are very difficult. Sometimes the planning is wrong, the objectives are wrong, then when it doesn't work out, people talk about cultural difficulties," Professor Freek Vermeulen said.

If mergers work, it is not because the national cultures fitted, "that is much more to do with the fact that the mergers were very compatible and very well planned," he said.

Different company cultures pose greater problems than different national cultures, argues Peter Kilgour, managing director of Towers Perrin said.

The difference between a company that is centralised and one that isn't, the difference between a company that empowers their staff and that has a strict hierarchy can be greater to overcome than national differences

"If you manage them and work with them, they don't become an impediment," he said.

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See also:

04 Feb 00 | Business
Mannesmann: a culture shock
10 Feb 00 | Business
Vodafone takes control
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