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The BBC's Peter Morgan
"Vodafone will pay a king's ransome for domination of the industry"
 real 28k

Ian Hodges, Barclays Stockbrokers
The first step will be to hive off Orange
 real 28k

Thursday, 3 February, 2000, 19:40 GMT
Vodafone clinches Mannesmann deal

Green or red light from Mannesmann's board?


Vodafone AirTouch and Mannesmann have agreed terms for a friendly merger, subject to a vote due late on Thursday by the Mannesmann board.

Mobile merger battle
The Mannesmann directors are said to be about to approve the deal, according to sources close to the companies. It is understood they are haggling over the fine detail before making an announcement.

Under the terms of the 114bn ($182bn) deal, Mannesmann shareholders are expected to get 49.5% of the merged company, with Vodafone providing 59 of its shares for each Mannesmann share.

The German firm's chief executive, Klaus Esser - who has fought a bitter battle to resist Vodafone's advances - is expected to leave the company.

Vodafone's Chris Gent
If approved, the merger will create a huge IT group under Vodafone chief executive Chris Gent, with some 42 million customers and interests ranging from the Americas and Australia through the UK, France, Germany and Italy.

Savings from combining the two companies are estimated to total at least 500m, with a minimal impact on jobs as the pair have few overlaps in their businesses.

French conglomerate Vivendi has confirmed that its link-up with Vodafone, announced at the weekend, is not affected by the deal.

Vodafone and Vivendi plan to create a powerful European internet portal and to build a continent-wide fixed-line phone network.

Some reports had suggested that Mannesmann had made a break-up of the Vodafone-Vivendi alliance a precondition of entering into a friendly merger.

Powerhouse

The new merged company could offer a huge range of internet and mobile phone services.

Mannesmann's Klaus Esser
On Wednesday, Anglo-Dutch computer services firm CMG confirmed that it had agreed a deal with Vodafone to supply it with WAP (Wireless Application Protocol) technology for its mobile phones.

This is the technical standard that allows mobile devices to be used for internet access.

Other phone companies are expected to be urgently looking to secure alliances to compete with the threat posed by the Vodafone-Mannesmann deal.

Regulators

The UK, Germany and the European Commission would have to give regulatory clearance to the merger.

This is likely to require the sale of mobile phone operator Orange, bought by Mannesmann last October.

Otherwise a combined Vodafone and Orange would be seen as being too dominant in the UK market.

The EC is expected to give an initial ruling on 17 February. Nigel Hawkins of brokers Williams De Broe has said he believes the EC will let the deal through.

Hostile bid

A titanic struggle for control of Mannesmann has been raging since just before Christmas, when Vodafone made its ground-breaking original offer - the world's biggest hostile takeover bid.

Chris Gent and Vivendi's Jean Marie Messier gang up on Mannesmann
Last-minute talks between the two sides had been arranged as time ran out for manoeuvring before it would come down to shareholders to decide.

Without an agreed deal, shareholders would have voted on Monday on whether to accept the takeover bid - and it was looking increasingly likely that they would have accepted Vodafone's hostile offer.

The value of Vodafone's all-share bid has been rising as its shares have climbed higher on the London stock market on the strength of growing conviction that it would succeed.

On Thursday morning, the offer valued Mannesmann at about 340 euros a share.

Share of ownership

While this put the value of Vodafone's offer very close to the 350 euros a share Mr Esser had put on Mannesmann, there were still other obstacles to agreement.

The main sticking point had been share of ownership in the merged company.

Mr Esser was understood to have given up his idea of Mannesmann shareholders owning 58.5% of the new company, but was still not prepared to see German control slip below the 50% mark.

Mr Gent, on the other hand, was said to be adamant that his company's shareholders should own more than half of the combined group.

On Thursday morning, shares in Mannesmann had risen 119% since October.

There was a feeling that an agreed deal, even at such a late stage, could leave its shareholders with better terms than going for the hostile bid.

Vodafone has said it decided to launch the attack on Mannesmann after the German company decided to buy Orange - a UK firm.

According to Mr Gent, this deal - which was seen as a defensive move by Mannesmann - contravened a gentleman's agreement not to compete on each other's territory.

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See also:
03 Feb 00 |  Business
Vodafone's Gent - the smooth operator
21 Jan 00 |  Business
Profile: Mannesmann - turning pipes into phones
18 Jan 00 |  Business
Vodafone UK's biggest company
17 Jan 00 |  Business
Do mergers ever work?
19 Nov 99 |  Business
The rapid rise of Vodafone
28 Jan 00 |  Business
Mannesmann eyes AOL Europe
11 Jan 00 |  Business
Vodafone plans mobile internet service
28 Jan 00 |  Business
Mannesmann to launch bank
20 Jan 00 |  Business
Vodafone ready to raise bid
14 Jan 00 |  Business
Mannesmann faces culture shock
10 Jan 00 |  Business
Mannesmann claims "mislead" shareholders

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