vodaphone slides
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vodaTRANSCRIPT
Vodafone AirTouch’s bid for Mannesmann
Mannesman & Vodaphone
• Jan 99: rumor that VD wants to buy MS – Esser (MS) calls Gent (MS); Gent denies
• Feb-oct: talks about cooperation • Oct 19: rumors that MS wants to buy Orange
– Gent calls Esser: a more « constructive » route? – MS-VD talks cancelled – 0.0965 MS share + 6.4GBP / orange share
• Takeover premium = 17%
– MS share price drops from 154€ to 141.3€
Mannesman & Vodaphone
• Oct 22: Gent contacts Wargubrg & GS • Nov 14: Gent makes offer to Esser
– 43.7 VD shares per MS share (à 202€) • 9% premium
– Esser finds it « inadequate » / fights it in court • Nov 19: Gent makes public offer
– 53.7 VD share per MS share (à 232€) • 25% premium!
– MS board advises sh. to reject the offer • Says true price = 350€
the telecom business in 99
• mobile only vs triple play • voice then data (3g, gprs, edge) • GSM norm in europe / no norm in the US • fast growth / low penetration rate
what are the economic forces conducive to consolidation?
Mannesmann’s reasons for acquiring Orange
• Gain presence in the UK • Gain presence in mobile internet • Synergies
– Cost savings – Revenue increases due to bigger size – Capex
Would merging with Vodafone be a better idea?
• Complementary geographical presences – Mannesmann: Continental Europe – Vodafone: UK, US, Japan
• Complementary strategies – Mannesmann: Fixed telephone, internet – Vodafone: Mobile
• Size • Existing partnerships
– France, Italy
Did Mannesmann overpay for Orange?
Risk arb
• What is the probability that the deal goes through, as estimated by the market on dec 17? – Assume that, if failure, MS and VD prices go
back to their oct 21 levels – Assume deal completed in 3 month – Take risk free rate = 5.5%
Estimating synergies • Using goldman sachs’ projections (ex 10)
– Assume WACC = 7.6%
Surplus sharing
• Take Goldman’s valuations of VD and MS • What fraction of synergies do VD and MS
shareholders get?
What is wrong with Goldman’s valuation?
Valuing target & acquiror
• Same estimates with a 13.5% WACC – PV of synergies €14.8bn – Value of Vodafone €48bn – Value of Mannesmann €52bn
• What fraction of synergies do VD’s shareholders get?
Surplus sharing
Why did GS choose such a ridiculously low WACC?
Takeover defenses
• Why could the deal fail?
• Why is Esser fighting so hard?
Mannesmann, Dec. 1999: “It has a lot planned”
Vodafone’s reply: “Every Mann knows: If you want to grow, you need a good mother”
Mannesmann’s reply: “A hostile mother is the worst thing in the world”
• Esser’s last defense – Call a white knight:
Vivendi Universal
The conclusion
• Jan. 2000: – Vivendi announces joint-venture with Vodafone in
the Internet business • Feb. 2000:
– New offer by Vodafone: Mannesmann is offered 49.5% of the new company
– Mannesmann accepts
The aftermath • Orange is sold to France Telecom • Other Mannesmann businesses are sold • Esser accuses J.M. Messier of being “indecent
and dishonorable” ⇒ Messier sues him
• Esser accused of receiving $30m for accepting the deal ⇒ Sued by shareholders
• Gent criticized for receiving $15m for completing the deal
Stock prices