Case

CASE 5: Acquisition of Mannesmann by Vodafone

-Jatin Mehta

B12085

Case summary

Vodafone AirTouch is UK’s leading cellular service provider. By the late 1980s, the company started expanding its global reach through series of acquisitions, joint-ventures and by 1999 had grown to be the largest mobile company in the world. Sales and operation profits were up by 34% and 17% respectively by September 1999 and Vodafone had captured markets across US, UK and continental Europe. To increase its presence in all-important US market, it acquired AirTouch Communications in January 1999 and later forged a 55-45 partnership with Bell Atlantic.

On the other hand, Mannesmann, formed in 1890 as a producer of seamless steel tubes, entered the telecommunications industry in 1990 by establishing and operating D2, the first private mobile phone network in Germany, and then it quickly became one of Europe’s largest telecommunications companies. By 1999, it had gained a leading position in four of the largest European mobile markets but remained mostly in continental Europe until 2000 when it acquired UK’s third biggest player – Orange and did not look to expand in US or Japan in near terms. It intended to a single supplier of integrated service in terms of fixed lines, wireless and internet activities and hence keep increasing ARPU.

As a whole, the cellular industry itself is expected to see exponential future growth of 45% and above upto 2003. The current penetration levels of 8% globally are extremely low and companies like Vodafone realized the need of robust and aggressive market strategies to capture this growth- Size and global scale are essential in attracting best global content.

In view of these goals, Vodafone is eager to acquire Mannesmann for the reasons as follows. Firstly, the acquisition could help expand the area of business. Mannesmann has the business in the telecommunication equipment, internet service among other things. Vodafone...