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SCMP Reporter

Hutchison Whampoa is understood to have been the key to Vodafone AirTouch's successful 175 billion euros (about HK$1.33 trillion) takeover of Mannesmann, the German telecommunications and engineering group, in which Hutchison holds a 10.1 per cent stake.

 As a result of the deal, Hutchison has seen the value of its holding in Mannesmann rise by almost 2.5 times in just three months.

 Banking sources close to the bid battle believe Hutchison is also set to become the merged group's largest single shareholder with a 5.05 per cent stake, if as expected, it accepts the Vodafone offer.

 Hutchison was bound by a contractual obligation not to accept any bid for Mannesmann unless it had first received the recommendation of the Mannesmann board.

 However, bankers claim Hutchison put pressure on the Mannesmann board to accept the bid.

 'You would expect Mannesmann's largest shareholder to have a say in what happens,' a banker close to Vodafone said.

 Hutchison's managing director Canning Fok Kin-ning was said to have been seen in Dusseldorf, where Mannesmann is based, on Wednesday just before the revised terms of the deal were brokered.

 'It looks like Hutchison crossed the floor, and were instrumental in the negotiations,' said SG Securities analyst Sean Johnston.

  Vodafone's eventual victory over Mannesmann, after three months of intense hostility between the two companies, marks the culmination of a remarkable investment story for Hutchison, which first ploughed GBP750 million (about HK$9.35 billion) into Orange, the British mobile network, in 1994.

 The investment was always booked at zero in Hutchison's own accounts given the expected losses, which meant that when the company agreed to back Mannesmann's GBP19.8 billion takeover of Orange in October, it was already looking at a pure profit.

 That deal valued Hutchison's 44.8 per cent stake at almost GBP8.9 billion, and as part of the deal, Hutchison accepted a 10.1 per cent holding in Mannesmann, which was then trading at 144.8 euros per share.

 At Friday's prices, Vodafone's offer values each Mannesmann share at 341.94 euros, putting Hutchison's total holding at 17.72 billion euros, or at current exchange rates, almost 14.5 times its initial investment less than six years ago.

 With the apparent help of Hutchison, Vodafone clinched the deal after slightly improving its terms, ensuring Mannesmann shareholders would end up owning 49.5 per cent of the Vodafone-Mannesmann group, up from the original 47.2 per cent.

 Orange, which will now be owned by Vodafone, is to be immediately put into a trust, and operated at arms length from Vodafone before it is eventually demerged.

 It is thought that several bidders are already circling the company, now valued at about GBP32 billion, including Nippon Telegraph and Telephone's mobile phone arm, NTT DoCoMo, Royal KPN of the Netherlands and France Telecom.

 All eyes are now on Hutchison, which has to choose between remaining a 5 per cent shareholder in a much larger group, or deciding to cash out its investment and use the money elsewhere.

 Hutchison has competing cash demands, both in the United States, where it owns close to 30 per cent of mobile-phone firm VoiceStream Wireless, as well as in its port operations, where Hutchison is thought to be still considering further investments.

 Analysts are divided on what the group's next move could be.

 'You have got to ask yourself what they are likely to do, given that they have gone from being a [44.8 per cent] shareholder in something that was absolutely core to their operations, to a 10 per cent shareholder in something that was still core, to now 5 per cent, and which is definitely not delivering what they want - a universal global footprint,' said John Tysoe, a telecoms analyst at WestLB Panmure.

 Other analysts said, however, that Hutchison had often been a minority shareholder in companies around the world, and could be content with remaining in Vodafone, and benefiting from being the largest shareholder, in the world's largest mobile-phone company.

DoCoMo plots expansion, Page 4 



Hutchison reaps huge Mannesmann return