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Chandan Dubey
Chandan Dubey
Articles (150) 

Revisiting the Past: Vodafone-Mannesmann Takeover

March 21, 2013 | About:
The deal: In 1999, the UK based Vodafone (NASDAQ:VOD) announced a takeover bid for Mannesmann AG. The deal would be to mutually exchange the shares of the companies. The management of Mannesmann immediately rejected the offer because as Vodafone was mainly a mobile network company, Mannesmann was much more diversified with revenues coming from four main business divisions: engineering (35%), automotive (29%), telecommunications (24%) and tubes (12%). Vodafone management meanwhile came up with a different deal which appealed directly to the shareholders of Mannesmann. The deal was to exchange each share of Mannesmann for 58.964 Vodafone shares. It valued Mannesmann at £117 billion ($191 billion).

This was the largest deal in corporate history so far. Here are some key figures of Mannesmann and Vodafone, compared to the figures of Vodafone now.

Mannesmann (2000) Vodafone (2000) Vodafone (2012)
Turnover (in € mil) 23,265 13,069 54,578
EBITDA (in € mil) 4.3 5.2 17,031
Market Cap (in € mil) 119,572 149,400 107,000
PE Ratio 56.1 54.1 13
PB Ratio 10.2 125.5 1.3

[/b] The deal was quite reviled by the employees of Mannesmann and the German media. It threatened to change the capitalistic landscape of Germany. This was the first successful hostile takeover bid of a German corporation The deal was seen very positively in the British media. Here are some savory tidbits from an FT special by Alan Cane[b]:

There was, for example, 1999 the world's largest cross-border deal Achieved through the $ 62bn acquisition of AirTouch [by Vodafobe] of the U.S. at the beginning of 1999. More recently, the company put down the largest amount - £5.96bn - ever paid for a third generation mobile phone license.

"It would be hard to think of something more satisfying than the Mannesmann deal We were coming, I think everybody would agree, but we worked hard from behind and the bonding at every level was fantastic."

[Vodafone’s] its present position is a tribute to the foresight, entrepreneurial instinct and, it has to be said, luck of the founders.

The whole article is a fantastic read and shows how divorced from reality the management was. Even the Goldman Sachs advisers who put together the deal were egregiously happy at the outcome.

After the Mannesmann deal, the market cap of Vodafone became $365 billion (£228 billion). An article from BBCjustifies the valuation as follows.

Its value reflects the bright prospects for the growth of mobile phone ownership around the world - and the huge boost provided by internet services soon being available via mobiles.

John Hempton (short-seller) who I quite admire has some very interesting things to say about the gross incompetence of Vodafone management here and here.

About the author:

Chandan Dubey
I invest because I want to be free by the time I reach 40 years of age i.e., 2025. My investment style is to find a small number of bets with large margins of safety. I pay a lot of attention to management and their incentive. Ideally, I like to buy owner operator businesses. I am fortunate to have a strong inclination towards studying. I aid my financial understanding by extensive reading in psychology, economic, social sciences etc.

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