What alternatives were there to a hostile takeover in case Mannesmann vs.

Vodafone There are other alternatives to gain control over company in a different manner than a hostile takeover. First of all, according to Brealey, Myers and Allen (Principles of Corporate Finance, 10th ed. p. 837), there are three ways of changing the management of a company: A proxy contest, though which a new board of directors is voted by the shareholders and this board choses new management for the company; A takeover, in which the company is acquired by another; A leveraged buyout of the company by private investors.

For a proxy contest, it would be necessary to obtain enough proxies to elect a new board of directors. The new board of directors would choose a new management, which could be more open to a combination of companies. The disadvantages of a proxy contest are that they are expensive and difficult to win. There is the instability of the voters, which can switch sides from one day to the other, and by winning the proxy contest, there are no guarantees that the new board will be willing to be under control or even in favor of the combination of the firms in the future. The takeover second form mentioned can be friendly or hostile. A friendly takeover is the one that is approved by the management. In the case Vodafone-Mannesmann, the manager of Mannesmann had not accepted the terms of the acquisition several times, which lead Vodafone to conduct a hostile takeover through a tender offer directly to the shareholders. By a leveraged buyout a large part of the purchase price of a company is financed by debt and the target company goes private. When a buyout is made by the own management of the company, it is called management buyout. These options were not possible, since shares of Vodafone were already a publicly traded, unless a new legal entity was created for a leverage buyout, and then after success go public again. That is, however, also an expensive option. For the target company, Mannesmann, there were some possible paths to follow that could have done to prevent a total takeover of the company. First of all, the spin-off of Mannesmanns telecommunication department would allow the investors to invest in just one part of the business and the managers would be able to concentrate in the core activity; that means, the business gets more capital investment and the operating performance is improved (Brealey, Myers and Allen, p. 858). In addition to that, it is easier to value the business once it is independent. If Mannesmann had spinned off the telecommunication department before the hostile takeover, it would be possible that with an improved management and more investment the shareholders would not agree to the tender, the department could be sold to a friendly third party or Mannesmann could even get a better value for the new company and still remain with the engineering and automotive business. Another possibility for Mannesmann would be asset sales (divestiture). Mannesmann could have sold part of the firm to a third party meaning important assets of the company or the

whole division of telecommunication, turning the takeover unattractive to Vodafone and remaining as well with the engineering and automotive business. These strategies are also named crown jewel defense. To prevent the takeover there are also the takeover defenses which can be divided into preoffer and postoffer defenses. (Brealey, Myers and Allen, p. 840) The preoffer defenses can be charter amendments: (Brealey, Myers and Allen, p. 840) Staggered board: election of the board in groups, so that the bidder does not have control of the target company immediately. Supermajority vote for extraordinary actions. Fair price: a fair price to be determined by formula is needed to approve the merger. However the price in this case should be considered fair and it would not stop the takeover. Restricted voting rights for shareholders who acquire more than a specified amount of shares on issues as the acceptance or rejection of a takeover bid. Stock transfer restrictions Waiting period: The acquiring company must wait a period of time before the merger is completed.

Or can be also: (Brealey, Myers and Allen, p. 840) Poison pill or stockholder rights plan, which gives the shareholders the right to purchase additional shares at the company at a lower price in case of a significant purchase of stock by the bidder. Poison put, which means that the existing bondholders have the right to demand repayment if there is a change of control of the company. Greenmail, which is to buy back recently acquired stock at a higher price in order to avoid a takeover. Greenmail is, however, prohibited in some countries, e.g. in the US. Increasing debt significantly could deter a takeover, but can also impact negatively stock prices. Make an acquisition could make the takeover significantly more expensive. However, in this case the takeover was conducted right after the acquisition of Orange. White knight is a defense technique that includes the acquisition of the target company buy a friendly third party, which was hoped of the firm Vivendi for a brief while during the negotiations.

Postoffer defenses are: (Brealey, Myers and Allen, p. 840) Litigation, in which the target sues the bidder for securities or antitrust issues. Asset restructuring, in which the targets buy assets that are unwanted or that could raise antitrust issues. Liability restructuring, in which the target can issue shares or sell assets to a friendly party.

It is however important to highlight that, in spite of the moral concerns of a hostile takeover, in this case, with a fair price, defensive strategies would rarely benefit shareholders.