Case: Vodafone Airtouch

Q1.

* The acquisition of Orange was a good strategic choice for Mannesmann. It allowed Mannesmann to get leading position on the British telecommunication market, and increase its presence in Austria, Swiss, Belgium and other European countries.

* The acquisition of Orange could be a defense strategy to maintain independence, and making Mannesmann much more difficult to be taken over. Orange’s (18%) and Vodafone’s business(35% market share) was overlapped in the UK, and the Vodafon- Mannesmann merger could be hard to be approved by the UK government based on anti-trust law.   Plus, the orange acquisition would also give Hutchison Whampoa a 10.1% share of Mannesmann which it could not dispose of for 18 months. Taking these shares off the market made it harder for Vodafone to acquire enough shares to take control of Mannesmann.

* Another reason is that the industry consolidation wave was happening at the time based on the economic rational. An extensive global footprint allowed an operator to attract the multinational companies and consumers to increase revenue.

* Mannesmann bought Orange at a premium of 17% over then-prevailing value of Orange. After the announcement of the deal (Oct 22), Mannesmann stock price dropped 8%. It means street consensus thought Mannesmann overpaid Orange by 8%. Hence, some people consider the acquisition of Orange as an important defense strategy of Mannesmann to maintain independence, instead of a pure strategic step. However, based on Orange’s fast growth and its leading position in the UK, we think Mannesmann would benefit from what it paid for.

Q2. To acquire Mannesmann, Vodafone’s offered a non-cash stock swap in which Vodafone offer 53.7 of its shares for each Mannesmann share. This offer valued Mannesmann at 138 billion euro, which means 266 euro per share of Mannesmann; or premium of 14% over Mannesmann’s share price on December 17th and a premium of 72% over Mannesmann’s closing price on Oct 18, 1999....