Vodafone AirTouch bids for Mannesmann
Case report in ,,Cases in Corporate Finance'', supervisor: Prof. Tim Adam, PhD
1. Acquisition of Orange: brief strategic and economic analysis
Mannesmann 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 salesÃ¯Â¿Â½. 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 commonÃ¯Â¿Â½. 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...