The bid values Orange 21.8% above Monday's closing price.

The UK operator's 45% shareholder, Hong Kong-based Hutchison Whampoa, will now recommend the cash-and-shares offer - worth £16.29 a share - to other shareholders.

The BBC's Chris Giles reports: "Only the largest companies are likely to stay ahead"

The takeover creates a company with 20 million mobile phone users in the UK, Germany and Italy.

The move to buy Orange follows Mannesmann's refusal to bid for One-2-One, which it claims was too expensive. Deutsche Telekom bought One-2-One for £10bn.

Mannesmann is paying £5,500 per customer, compared to around £3,000 for One-2-One, a premium Orange says reflects the higher spending of its customers.

"Yes, the price is high," Mannesmann boss Klaus Esser conceded at a London news conference. "But you should never compare apples and oranges."

Orange has 3.1m subscribers, ranking behind Vodafone Airtouch and BT Cellnet in the UK.

Mannesmann ambitions

Mannesmann has already established itself as the second largest telecoms provider in Germany, following liberalisation of the telecoms market in 1998.

The company has already bought Olivetti's telecom assets, which were put on the market when Olivetti took over Telecom Italia. This catapulted the company into the number two position in the Italian telecoms market.

Analysts earlier said that if Mannesmann bought Orange it would not only establish the company as a player in the European mobile sector, but also put it out of the price range of potential buyers, such as Vodafone Airtouch.

But investors worried that Mannesmann may have paid too much for Orange, which went for twice as much as One-2-One, which Mannesmann refused to bid for because it was too expensive.

Shares in Mannesmann fell at one point by nearly 10% in Frankfurt before recovering.

"Yes it's a very big bid and yes, more importantly, it's a very full price. But Mannesmann has shown itself capable of doing extremely good deals," said one dealer.

The deal gives Mannesmann strong positions in Germany, Italy and the UK, as well as investments in France, Austria, Belgium and Switzerland - making it one of the largest networks in Europe.

The scale of the merged company will be vital in providing the financial muscle and investment capability needed as mobile technology moves into the so-called third-generation, analysts say.

'Powerful partnership'

The bigger companies are more likely to be successful in bidding for licences for the high-speed internet-capable mobile networks when they are launched early in the next century.

The need to provide global reach and financial clout has driven recent mergers such as Vodafone's acquisition of Airtouch in the US, and BT's taking on Securicor's 40% satke in Cellnet.

Hutchison Whampoa said it would use cash generated by the sale to expand its worldwide business.

"This landmark transaction will, if Mannesmann's offer becomes unconditional, create a powerful partnership between two of the strongest wireless network operators in Europe," a spokesman for Hutchison said.