Executive Summary
As competition in the European telecommunications continues to increase, there has been an increasing trend toward the consolidation of firms. Considering these changes in the market and surveying the competitive landscape, Chris Gent, CEO of Vodafone Airtouch has recently made a friendly offer to acquire Mannesmann AG. Mr. Gent’s interest increased considerably after learning Mannesmann acquired Orange PLC, one of Vodafone’s largest competitors in the UK. After the friendly acquisition offer was subsequently rejected due to Mannesmann’s perception that the offer was inadequate, we analyzed the synergies and estimated equity trade-offs that are expected to occur upon the merging of the two firms and have concluded that Vodafone Airtouch should proceed with a hostile bid initiative.
We believe that a hostile bid will be accepted based on reasons including: 1) Mannesmann shareholders will benefit through an immediate appreciation of equity value. Although various analyst synergy estimates differ, they all commonly project significant increases in Mannesmann equity value. The conservative estimation by Goldman Sachs, being a 23.7% increase, represents a change from £80 billion to £100 billion in equity value for Mannesmann shareholders. 2) Although Vodafone’s shares will become diluted due to the issuance of 27,811 million new shares, equity value per share of the original shares will appreciate by 25.5% from £83,983 million to £105,404 million due to estimated synergies. 3) We anticipate that Vodafone shareholders will consider the risk of attempting the hostile acquisition worthwhile, particularly because the risk of not doing so in ...