Meade Series
Monday, September 12th, 2011
Vodafone-Mannesmann acquisition: The greatest acquisition yet
In the complex world of corporate mergers and acquisitions, rarely do they commence without a hitch or resolve with everyone smiling. The terms ‘friendly’ and ‘hostile’ are simplified notions for a series of very complicated manoeuvrings and equanimity is a tough practice for either party involved. But when you have foreign companies attempting to acquire large local brands, it’s time to let the jingoism fly, as it often gets personal. The bigger the companies are on the metaphorical chessboard, the more an outcry is likely to be heard beyond the confines of the boardroom.
A recent example is Kraft’s purchase of England’s confectionary giant, Cadbury’s; boy did the British press have a field day stoking public indignation at the loss of such a hallowed brand, now ‘plundered’ by the oh-so-crass American Cheez Whiz purveyors. Shock, horror, liberal doses of snobbery and also fear on the part of the hundreds of employees left wondering what their new masters might do with them. And so it is with neoliberalism and the free-market — Darwinism rules and weaker companies must succumb, like the proverbial wounded fawn to the inevitable predatory victor. The tangled politics of corporate ‘land grabs’ are always a topic for debate, and when governments step into the breach, things can get messy.
When the joining of two brands occur, many new problems arise – even before the ink has dried – not least of which are the inter-management aspects, project and staff redundancies, and the serious questions of how to re-brand the new entity that has essentially just become a new organism. Add to all of this the public relations aspects of handling those whose fingers will inevitably get burned and you get the sense that this is a business move not for the faint-hearted, or feeble minded. And yet, they happen all the time with automakers, pharmaceutical companies, in telecommunications, and in the petroleum industry.
There are a few very large, very famous merger-acquisition cases still being talked about, having acquired something of a mythical status. The two largest were in the last decade and involved the media and telecommunications industries: The AOL Time Warner merger and the Vodafone-Mannesmann acquisition in 2002, with the latter being the biggest in history, and perhaps the most contentious. So contentious in fact, that Britain’s Prime Minister, Tony Blair, and German Chancellor Gerhard Schröder, weighed in publically at the time, to what was fast becoming a difficult and heated situation. One has to be very careful with terminology – in the press, merger means friendly and takeover inevitably has a hostile tag stuck to it – whether that is the reality or not; and what is publicly said certainly may not be the case behind closed doors.
UK-based Vodafone were partnered with German Mannesmann at the time, when the latter purchased Orange, which was then the third largest network in the UK (Vodafone being the first). They made this audacious move without warning or consent from their partner, Vodafone. And once Orange became the property of Mannesmann, they were in direct competition for services on UK soil – a pretty unsavoury corporate position, and one that forced the hand of Vodafone to retaliate. And retaliate they did.
Vodafone parried what could have been the beginnings of their demise in this rapidly evolving market with a direct, unsolicited bid aimed at the Mannesmann shareholders. In situations like this, leadership skill, a keen ability to see the long game, and a pinch of good, old-fashioned street smarts were needed to not only make the acquisition a reality, but also handle the negative press that the Germans were instigating. Vodafone’s Chief Executive, Christopher Gent, and Goldman Sachs’ Scott Mead, who was then the chief advisor on the deal, proved very adept indeed. Mead was an experienced strategist who was able to put the necessary components in place and lead the advisory team to take action, and do it with aplomb and speed; the result of which would ultimately lead to the record $200 billion acquisition. But first Vodafone had to quickly recover its composure from the initial shock of the Mannesmann move, and deliver a response urgently.
That response came in the form of an initial offer to buy Mannesmann. This was quickly rebuffed, with barbed statements being issued from their board of directors and the unions. It was reported that deputy chair of the Mannesmann supervisory board, Klaus Zwickel, described the action “brutal behaviour” and an example of ”predatory capitalism, (which) aims only at short-term profits for the shareholders.” Likewise Schröder said publicly that a hostile takeover would “damage corporate culture.”
Of course the mud slinging couldn’t only come from the German side. Hell hath no fury like nationalist pride, and the Brits had to get the metaphorical boot in as well. And truth be told, they had every right. The British press called out the Germans as “nationalistic” and “hypocritical,” with Blair stating flatly in an interview, “we live in a European market today where European companies are taking over other European companies, are taking over British companies, and vice versa.” This was certainly the case with Mannesmann’s recent acquisition of Orange, somehow strangely forgotten amongst their storm of vitriol.
To be fair, not all of Mannesmann’s leaders saw the move from Vodafone as a threat to national interests. The company’s group chair, Klaus Esser, saw the situation for what it was: a set of economic decisions that are an intrinsic part of the business landscape. Add to this the supreme irony that the hysterics on the German side about losing their ‘national business,’ were made doubly ridiculous by the fact that 60% of Mannesmann’s shareholders were foreign anyway.
Vodafone, in the end, was able to make an offer that couldn’t be refused and so became the new owner of Mannesmann. The case is an interesting one because it highlights the complex relationships involved with multi-national partnerships, and ones with perhaps different economic paradigms — the Germans practicing what they believed to be a more ‘social economic’ program, which in reality is arguable also. Nonetheless, this acquisition is significant because of the inherent drama of the case, the political wrangling, and the balletic ability of some of its key players to quickly and effectively resolve a very tricky and urgent situation. Reasons that continue to make this one of the most talked about and well-known acquisitions in business history.
About the Author
Amanda Lisin is a veteran writer and journalist primarily in the fields of finance and business, focusing on the US and European markets.
Her background as an in-house writer for top newspaper publications in the past lead her to become a freelance writer and commentator as well a regular guest on television as an expert analyst in the field.
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