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Vodafone Bidding Mannesmann Essay

3919 words - 16 pages

Vodafone AirTouch bids for MannesmannCase report in ,,Cases in Corporate Finance'', supervisor: Prof. Tim Adam, PhD1. Acquisition of Orange: brief strategic and economic analysisMannesmann AG is a conglomerate which in the 90s had businesses in engineering, automotives and wireless telecommunications, the latter segment accounting for about 25% of total sales. Moreover, Mannesmann was the biggest shareholder in D2 wireless telecommunications company, which controlled 41% of German wireless telecommunications' market. All in all, Mannesmann was clearly a significant player in the very rapidly growing European t-com market (Exhibit 2).In our opinion, acquisition of Orange PLC by Mannesmann AG was a strategic decision, mainly motivated by protection against Vodafone's acquisition intentions. Moreover, the acquisition of Orange PLC by Mannesmann made possible several strategic advantages, particularly a geographical expansion of Mannesmann's telecommunication activities.Let us briefly illustrate the strategic interests of the players in telecommunications market. In the 90s, Wireless service was the most lucrative niche of the industry inside the telecommunications branch due to the fact that the market did not reach its equilibrium state (the number of cell phones and internet users has been increasing steadily in contrast to fixed line users). By the end of the 90s we observe a huge number of mergers and acquisitions (Exhibit 8: European and US Mobile Transactions in 1999). Typically telecommunication firms in the 90s were growing and increasing their market shares by horizontal acquisitions and mergers, while such conglomerates as Mannesmann were not very common. High number of acquisitions and mergers in the industry can be partly explained by technological difficulties in entering a new market as a stand-alone firm, but the entrance is also complicated because of the license requirement needed for operating in particular wireless frequency.Analyzing competition in the global telecommunication market by the end of the 90s, we concluded that Vodafone's competitive strategy should be expansion in the European market and consequently it could benefit from acquisition of Mannesmann. Although Vodafone was active in all major markets (Europe, USA, Asia, Africa and the Middle East), the most interesting market for every t-com operator was Europe. "Western Europe, with population of 400 million, was the world's single largest market for mobile communications with the highest number of subscribers. It enjoyed a CAGR in number of subscribers of 58% from 1995 to 1998 and was expected to continue to enjoy such numbers in the near future. The largest European wireless markets were those of Germany, UK, France, Spain and Italy, representing approximately 70% of all mobile users in Europe".The information about Mannesmann as a possible takeover target for Vodafone that appeared in the newspapers in January 1999 could not be considered as just rumors but the...

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