Germans attack Vodafone strategy

By DAILY MAIL REPORTER
Updated:

 

Klaus Esser, chief executive of German telecommunications group Mannesmann, is expected today to launch a fierce attack on the corporate strategy of Vodafone AirTouch designed to frighten Mannesmann investors who are leaning towards accepting Vodafone's £85 billion bid.

In a formal defence document Esser is likely to say that Vodafone, by focusing on mobile communications, is underestimating the benefits of integrating fixed and mobile telephony and the Internet and is seriously exposed because it does not have control of key operations, particularly in the US and Japan.

It will also claim that the predator has been slower than Mannesmann in appreciating the significance of the Internet.

Esser is also thought to want to highlight expectations that Mannesmann will be able to realise synergies of about e1

billion (£625 million) a year within three years stemming from the integration of British mobile phones company Orange, which it has just acquired.

It is believed that Mannes-mann expects to increase its earnings before interest, taxes and depreciation by more than 60% this year and by around 40% a year for the next three years. Controversially, Esser is expected to predict that with the enforced disposal of Orange, Vodafone would grow by only around 25% a year over the same period.

Esser may also say he believes that Mannesmann is worth at least e 250 per share today compared with a bid value of

e262 and to repeat his view that it is worth 'potentially at least

e350 per share'.

But an attack on Vodafone's strategy and the emphasis Mannesmann puts on the risks being run by those of its shareholders leaning towards accepting the offer will form the core of the defence. Mannesmann will say that under the terms of the offer Vodafone might only be able to achieve a minority position and be unable to realise the benefits of controlling the German group, while still having to demerge Orange, because of competition regulations.

It will also point out that Vodafone has reserved the right to waive its 50% minimum acceptance condition. If it did so it would not be able to realise the benefits of combining the two companies, Mannesmann could say.

The defence document will warn that if Vodafone does not gain more than 75% of the Mannesmann equity it could be restricted by German law from entering into mergers, consolidations and spin-offs, including the demerger of Orange.

Mannesmann believes that customers want an integrated fixed and mobile service and being able to offer this creates customer loyalty. It will reject Vodafone's claims that returns are lower for fixed services.

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