Vodafone offer for Mannesmann was the biggest ever international aggressive offer. this case looks at the economic, financial and corporate control concerns that arose as a result of the contract.
Market's Estimate of Synergies
Estimation of Synergies from Vodafone's Acquisitions of Mannesmann (₤ millions) PV of Synergies (£ millions)
Exchange Rate (€/£)
PV of Synergies (€ millions)
Perpetuity Growth (Revenue/Cost)
Capital Exp. Savings After 2006
Tax Rate Risk-free Rate
Market Risk Premium
Cost of Equity
Cost of Debt
Proportion of Equity
Proportion of Debt
Possible Risk-free Rates
1. What was the strategic and economic rationale for Mannesmann’s acquisition of Or-ange? Did Mannesmann overpay for Orange?
2. Vodafone AirTouch proposed that each Mannesmann share would receive 53.7 Vodafone AirTouch shares, so that in aggregate Mannesmann shareholders would own 47.2% of the equity of the new combined firm.
a) Describe the stock swap. As of December 17, what was the market value of Mannesmann’s contribution to the combined firm? As a Mannesmann shareholder, would you accept the current offer? As a Vodafone share-holder would you support the proposed transaction?
b) Suppose the market estimated the probability of Vodafone AirTouch successfully acquiring Mannesmann at around 0.6. On December 17, 1999, based on real sock prices of the two firms, what is the market’s estimate of the implied synergies from the deal?
Assume that if the bid fails both firms would trade at prices prevailing on Oct. 21, 1999.
c) What is the present value of the expected synergies (in pounds) as shown in Exhibit 10 as of March 2000? (Refer to the pro forma forecast of synergy in Exhibit 10. Assume: i) synergies related to revenues and costs grow at 4% annually after 2006, ii) savings from capital expenditures do not extend beyond 2006, and iii) the merger does not affect working capital. Use an average exchange rate of €1.5789/£ to convert the estimate of pound synergies into euros.)d) UK equities return 7.7% (in pounds) over the UK risk-free rate for the period 1919 – 1993 and 6.8% over the UK risk-free rate for the period 1970 – 1996. How might this observation affect your decision?
3. What hurdles is Vodafone AirTouch going to face to complete its acquisition of Mannesmann? Who is going to be its most likely supporter? Who is going to re-sist? Why?
4. Why is Gent so eager to do the deal? Why is Esser fighting so hard?
5. What role do hostile takeovers play? In their absence what mechanisms perform the same function? How is the German Corporate Governance system different from the Anglo-Saxon system?