Vodafone, Mannesmann Get Hitched

Mannesmann AG's supervisory board approved the sweetened $179.80 billion takeover bid from Britain's Vodafone AirTouch PLC Friday, a deal to which the two companies had agreed late Thursday. The move paves the way for the biggest corporate merger in history, reports CBS MarketWatch's Gareth Vaughan.

The tie-up means that cellular phone operator Vodafone would leapfrog Finnish cellular phone maker Nokia to become Europe's biggest -- and the world's fourth largest -- publicly traded company with a market capitalization of roughly $350 billion.

The combined group would have some 48 million customers across 26 countries. The world's second biggest mobile phone operator, NTT DoCoMo of Japan is well behind with some 25 million customers.

In a statement, Mannesmann, a telecom and engineering company, said it believes the agreement reflects the preferences of the majority of its shareholders. Vodafone said the new offer is open until Feb. 17.

European analysts welcomed the deal. "It's very positive because we have the biggest telecom company world-wide and the market leader in mobile," said Frank Wellendorf, Duesseldorf-based telecom analyst at West LB Panmure.

The German company had fiercely fought Vodafone's hostile takeover bid for three months. Then Thursday morning, the companies announced they were finally in talks that could lead to an agreement.

Late Thursday, Mannesmann chief executive Klaus Esser and Vodafone's chief executive, Chris Gent, announced they had an agreement. Under the terms of their deal, Mannesmann shareholders would receive 58.96 Vodafone shares for each Mannesmann share. This would give Mannesmann a 49.5 percent stake in the new company despite the fact that it will contribute only 31 percent of this year's earnings.

Vodafone had initially offered 53.7 shares for each Mannesmann share, valuing the German group at roughly $150 billion. Mannesmann chief executive Klaus Esser had rejected Vodafone's initial approach as being unacceptable from a strategic perspective and had maintained that it undervalued his company.

In London trading Friday shares of Vodafone dropped 6.45 percent, while in Frankfurt shares of Mannesmann tacked on an early gain of 1.7 percent, before sliding 2.55 percent.

Analysts said that although the deal is very good from a strategic perspective, until Thursday most investors -- especially Vodafone shareholders -- had believed the British group's original offer would succeed and now they have a sweetened deal to contend with.

"Gent wanted an agreed deal and to get it he surrendered more control of the company. The deal is a little less sweet for Vodafone shareholders and it looks as if Gent is being generous with Vodafone shareholders wallets," said James Dewhurst, London-based equity salesman at CCF Charterhouse.

Mannesmann chief executive Klaus Esser is to join Vodafone's board as an executive director and four members of the German group's supervisorboard will also be asked to join the British company's board.

Vodafone has pledged to continue developing Mannesmann's wireless, wireline and Internet strategy within the combined group. The merged entity will also continue developing Mannesmann's tele-commerce activities, Vodafone said.

During the takeover battle, Mannesmann had criticized Vodafone's wireless-only strategy arguing that its strategy of combining mobile with fixed line telephony, mobile data and Internet, was superior. This encouraged Vodafone to launch its global Net and data platform and Web portal last month.

The two companies will also co-operate in demerging the U.K.'s No. 3 cellular phone operator Orange. It was Mannesmann's $33 billion takeover of Orange -- Vodafone's growing domestic rival -- last October, which acted as a catalyst for Vodafone's swoop on the German company.