Vodafone, Mannesmann Set

Takeover At $180.95 Billion After

Long Struggle
By
GAUTAM NAIK and
ANITA RAGHAVAN Staff Reporters of The Wall Street Journal
Updated Feb. 4, 2000 9:25 a.m. ET

LONDON -- After a bitter three-month battle, Germany's Mannesmann AG surrendered to

Britain's Vodafone AirTouch PLC in a friendly $180.95 billion merger, the biggest deal ever and
one likely to reshape the global-telecommunications landscape.
See recent articles that ran about the tie-up of Mannesmann and Vodafone in The Wall Street Journal.

The transaction -- which eclipses even AOLInc.'s planned $131 billion acquisition of Time
Warner Inc. -- would create the world's largest mobile-phone operator, with 42.3 million
customers in Britain, the U.S., Germany, Italy, France and a host of other markets. The sheer
scale of the union is expected to prompt rival operators to merge, lower wireless rates for
customers and hasten the arrival of cell phones that work anywhere in the world.
The transaction will have its most immediate impact in Europe, which is ahead of the U.S. in the
development of wireless services and could now see that gap widen. The deal, which marries
Britain's leading wireless player with the largest in Germany, was approved Friday by
Mannesmann's supervisory board.
Vodafone's triumph could have important implications for the takeover landscape, spurring other
European and U.S. companies to launch hostile takeovers in Germany, which has never seen a
successful hostile deal. "It shows such a thing is really possible here," said Josef Joffe, a foreignpolicy specialist in Germany. He added "the old ways of doing business -- the idea of protecting
producers first rather than the consumer -- are still very present," in Germany. "But underneath,
the laws and habits that govern them are churning at a significant pace."

On the streets of Germany, though, it was the old ways that were on display. "What's German
should stay German," argued Gerhard Lemme, a 42-year-old Frankfurt handyman. "After all, if
all the good companies get swallowed up, what will we have left?"
The accord was hammered out by Vodafone Chief Executive Chris Gent and Mannesmann Chief
Executive Klaus Esser in the early hours of Thursday morning, after weeks of pitched battle and
a war of words between the two chief executives.
Under the proposed all-stock transaction, Mannesmann holders would receive 58.96 Vodafone
shares for each Mannesmann share, valuing Mannesmann at 353 euros ($349.61) a share, these
people said. Mannesmann holders would control 49.5% of the combined company while
Vodafone shareholders would hold a majority 50.5%, these people said.

Ending a Duel
The agreement appears to bring to an end the closely watched duel between Messrs. Gent and
Esser for control of Mannesmann. Thursday, at a late-night news conference at Mannesmann's
Duesseldorf headquarters, both men were conciliatory. "We are both winners," Mr. Gent said. In
explaining why he finally surrendered, Mr. Esser said the offer price had increased sufficiently
with the rise in Vodafone's stock. "I got the impression that a large number of our shareholders
preferred a recommended agreement," said Mr. Esser. "Early on, I agreed that what we needed is
350 euros" a share for Mannesmann. Since Vodafone made its designs known, the value of the
offer "has risen over 90%."
The deal underscores the booming popularity of the cellular phone, a device that already outsells
the personal computer and is being transformed from a mundane voice-only gizmo to one that
can access an array of special services, including the Internet.
The combined heft of Vodafone-Mannesmann, the only pan-European wireless player, probably
would prompt rivals to speed up their own plans to merge. "This is going to be a huge catalyst,"
said Paul Brilliant, London-based wireless analyst at Credit Suisse First Boston. "There's a wave
of consolidation coming."

The deal is expected to invite intense regulatory scrutiny from the European Commission, which
has taken an especially tough look at recent telecom deals. At the very least, VodafoneMannesmann will have to dispose of Britain's Orange PLC, a mobile-phone operator that
Mannesmann acquired for $33 billion in October. Two leading contenders are France
Telecom SA and Royal KPN NV of the Netherlands, although France's Vivendi SA might also be
interested.
Although Vodafone launched a hostile offer, the two companies had held back-channel talks
about a friendly deal for two weeks, which culminated with Mr. Gent flying on his private jet
Wednesday night to meet Mr. Esser in Duesseldorf. Also present was Canning Fok, managing
director of Hong Kong investment firm Hutchison Whampoa Ltd., which, with 10.3% of
Mannesmann's stock, is the single largest shareholder. Mr. Fok traveled Wednesday morning to
Duesseldorf, missing Chinese New Year celebrations that were set to start Thursday in Hong
Kong.
Late Wednesday night, after a round of meetings with advisers, Mr. Gent and Mr. Esser had a
one-on-one discussion at Mannesmann's headquarters. An hour later they emerged, and the two
sides huddled again. Mr. Fok helped to persuade Mr. Esser to drop his resistance to Mannesmann
shareholders controlling less than 50% of the combined company, people familiar with the
situation said. The meeting broke up at 1:30 a.m., and Mr. Gent then flew back to London, only
to return to Duesseldorf Thursday afternoon to await the decision from Mannesmann's
supervisory board last night.

Initiating a Bid
Vodafone's takeover of Mannesmann was triggered by the German company's surprise agreement
in October to acquire Orange. Mannesmann and Vodafone are partners in various countries,
including Germany and Italy, and Mr. Gent saw the Orange move as an incursion by an ally in
his backyard. He, in turn, decided to acquire Mannesmann, making a friendly offer of 240 euros
a share. He was immediately rebuffed by Mr. Esser.
During the past three months, Mr. Gent and his advisers at Goldman Sachs
Group Inc. andUBS AG's Warburg Dillon Read have been at odds with Mr. Esser and his

advisers atMorgan Stanley Dean Witter & Co., Merrill Lynch & Co., J.P. Morgan & Co.
and Deutsche Bank AG regarding the value of Mannesmann.
On Dec. 30, the two chiefs met for two hours at a Paris hotel, where Mr. Esser presented Mr.
Gent with a list of issues that would have to be resolved before any transaction could be done,
people familiar with the meeting said. But the two sides were at serious odds over price. Mr.
Esser consistently had said Mannesmann shareholders should control the combined company
while Mr. Gent had been adamant that Vodafone shareholders have a majority stake.

Turning Point
In a move to thwart Vodafone, Mannesmann began to negotiate a full-fledged merger with
Vivendi a couple of weeks ago that would leave the German company in control. But the two
couldn't agree on price -- and Vodafone trumped Mannesmann by clinching its own Internetventure with Vivendi last weekend. That proved to be a turning point in the battle. On Monday,
the first trading day after the Vivendi alliance was unveiled, Vodafone's stock surged, effectively
pushing up the offer price of the Vodafone deal close to Mr. Esser's demand for 350 euros a
share.
The stock continued to climb during the week, prompting some big German institutional
investors to clamor for Mr. Esser to negotiate a friendly agreement with Mr. Gent. At the same
time, some of Mannesmann's most influential board members, including DaimlerChrysler CoChairman Juergen Schrempp, started leaning on Mr. Esser, people familiar with the situation
said.
By Tuesday, Mr. Esser, who had wanted Mannesmann's shareholders to control 58.5% of the
combined company, had set his sights on 52%, people familiar with the situation said.
The expected agreement represents a 9.8% jump from Vodafone's original offer of 53.7 Vodafone
shares for each Mannesmann share.
As part of the expected agreement, Mr. Esser would become an executive director until
Mannesmann takes public its automotive and engineering businesses this year, people familiar

with the situation said. Mr. Esser will then become nonexecutive deputy chairman of the
combined company, they added.
The combined company's 19-member board will have five Mannesmann representatives,
including Mr. Esser, Vodafone said Friday in a statement. The other 14 will be executive and
nonexecutive board members of Vodafone. A German supervisory board is similar to a U.S.
board of directors. The management board is the group of executives who run the company's
day-to-day operations. Mr. Esser is chairman of the management board but isn't a member of the
supervisory board.
Duesseldorf will become one of two headquarters for the combined businesses' European
telecommunications operations. In addition, Vodafone has agreed not to sell Mannesmann's
involvement in the Arcor and Infostrada traditional wired-phone businesses.