Vodafone AirTouch, the world's largest mobile phone group, is understood to be looking into how it might launch a hostile takeover bid for the German industrial group Mannesmann. A bid might take months to complete and would have to be worth more than 70 billion euros (about HK$581.2 billion) if Vodafone were to bid for the whole group, bankers said. It was also unlikely to be welcomed by Mannesmann's existing management. However, bankers said Vodafone was considering waiting until Mannesmann completed its planned strategic break-up, under which it would hive off into separate companies its telecoms, tubes, engineering and vehicle businesses. Vodafone was clearly only interested in Mannesmann's telecoms businesses, and Mannesmann's strategy would enable it to pay much less for the whole group, the bankers said. A bid also looks possible given the sharp fall in Mannesmann's shares since its bid for the British mobile phone group Orange was announced. Investors have expressed concern that Mannesmann might be taking on too much debt by buying Orange, and unnecessarily diluting its own share capital. The German company's GBP19.8 billion (about HK$255.1 billion) bid last week for Orange has spurred Vodafone into action. The company has recruited United States investment bank Goldman Sachs - which, ironically, advised Orange to accept Mannesmann's bid - to find a way to break down Mannesmann's defences. Hostile takeovers in Germany are rare, but in Mannesmann's case it is even more difficult to achieve because an arcane rule in the company's articles of association prevents any shareholder from voting more than 5 per cent of the group's issued share capital. Vodafone regards Mannesmann as a vital part of the group's global strategy. Having established a leading market position in the US with its purchase of AirTouch and recent merger with Bell Atlantic, Vodafone has begun concentrating on Europe, where Mannesmann is already Vodafone's partner in key mobile phone markets. Mannesmann's bid for Orange however, has made it increasingly difficult for Vodafone to take over Mannesmann, given the huge regulatory obstacles posed by the merger. In its bid, Mannesmann secured an irrevocable undertaking from Orange's largest shareholder, Hutchison Whampoa, that it would vote all its 44.8 per cent stake in Orange in support of the Mannesmann bid - even if a higher bid for Orange were made. This means that if Vodafone were to acquire Mannesmann, it would probably be unable to block the Mannesmann takeover of Orange, and Vodafone would be burdened with the job of selling Orange immediately. It is understood that the Vodafone board has asked Goldman Sachs to find out whether it is possible to launch an unsolicited offer for Mannesmann. Not only does the bank have to find a way around Mannesmann's 5 per cent voting rule, it must also overcome a stipulation in the German takeover rules that unsolicited bids need support from 75 per cent of shareholders. Mannesmann chief executive Klaus Esser said last week that he thought a takeover bid from Vodafone was highly unlikely. But bankers said time was running out for Vodafone, and if it wanted to acquire a lucrative foothold in the fast-growing European mobile market, it would have to move fast. The 5 per cent voting rule expires at the end of next year, and Mannesmann had said it would not seek its renewal, which would make any hostile takeover bid easier. By then, however, it will probably be too late for Vodafone to launch its takeover, given that Orange is likely to have been integrated into Mannesmann and will be much harder to extricate. Furthermore, the company will have missed out on much of the considerable growth potential of the European mobile market. Sheel Kohli in London
