EU approves Vodafone Mannesmann deal

The European Commission has conditionally approved the merger of UK mobile phone giant Vodafone Airtouch and Mannesmann of Germany.

European regulators ruled that Vodafone must sell off Orange, the UK mobile phone company owned by Mannesmann, and all its subsidiaries as a standalone business.

UK authorities had also ruled that Orange must be sold off to comply with competition regulations.

We now look forward to getting on with the integration of the two companies

Vodafone chief executive Chris Gent

The Commission said Vodafone would also have to open up its mobile phone network, giving rivals access to its inter-operator roaming tariffs and wholesale services.

Competitors will be able to use the Vodafone Mannesmann network for an initial three-year period with immediate effect after the Commission's clearance.

Up for grabs

The announcement is expected to trigger a race to buy Orange, which European Competition Commissioner Mario Monti said would be a "viable rival to Vodafone."

The Commission did not say whether the demerger should be followed by a separate listing or trade sale of Orange, leaving its fate in the hand of its shareholders.

Orange says it hopes to re-list by June.

A return to the stock market is likely to see its shares surge on expectations of a bidding war between France Telecom and Dutch carrier KPN Telecom who are both known to be interested.

KPN reiterated its interest in Orange within minutes of the EU ruling.

"It's a great brand name and a lot of people use it in the UK. I would be surprised if it took them a very long time to sell it for a reasonable price," said analyst Victor Basta of Broadview.

The Commission said Vodafone had given substantial undertakings about giving other mobile operators the chance to provide pan-European advanced seamless services to customers by using its network.

"These undertakings will prevent the emergence of a dominant position for the provision of these services," the Commission said.

In London, Vodafone shares rose sharply on news of the clearance.

Record deal

The £112bn ($183bn) all-share deal is the largest corporate merger in history.

World's largest takeovers

Vodafone-Mannesmann: $183bn

AOL-TimeWarner: $181bn

MCIWorldCom-Sprint: $127bn

Pfizer-Warner Lambert: $88bn

Exxon-Mobil: $86bn

The new company is called Vodafone Airtouch, although the Mannesmann name is being retained in Germany.

The takeover made the Vodafone group by far the largest company on the London stock market and one of the largest in the world.

The EU decision to approve the deal will see the creation of an international telecoms giant with 54 million customers in 25 countries and across five continents.

When the deal was agreed in February, Vodafone said it would mean more money for investment in the next generation of mobiles.

The company is currently in a bidding war with BT for the largest next generation mobile phone licence in the UK.

"The real benefit of this deal is the size of Vodafone Mannesmann," said analyst Victor Basta.

"Despite the fact that they have to open up the network to other players, they are going to be a gorilla in their market, the dominant player, and that will give them a huge advantage and the potential for making a lot of money downstream."