Vodafone Manessmann Case

Vodafone AirTouch’s Bid for Mannesmann

Problem Statement:

         The global telecommunication industry was poised to grow rapidly. It accounted for US$ 1 trillion revenue in 1998 i.e. 4% to 5% of global GDP. It was forecasted to grow at 29% per annum in the future. Considering this, Vodafone has initiated to launch a formal hostile bid for Mannesmann, the German telecommunications company. Vodafone’s CEO, Gent, would need to review the strategic case underlying the combination of Vodafone AirTouch and Mannesmann and the probability of success of an unprecedented and hostile takeover bid in Germany. The recommendations will play a crucial part in the future course of action charted by Vodafone AirTouch board.

Contextual Analysis

Company

Vodafone AirTouch: 

Based in UK, Vodafone AirTouch was one of the world’s leading international mobile telecommunications companies. It had a population footprint of 960 million people and was operating in 24 countries. Keeping up with the economies of scales, Vodafone acquired AirTouch Communications in January 1999 and combined its wireless assets with Bell Atlantic Corporation in a joint venture. They were the largest wireless operator in the US with a market share of 33% and 62% of equity subscribers came from UK. The company’s strategy was to focus exclusively on mobile telecommunications as against combining mobile and fixed networks.

Mannesmann AG: 

Mannesmann entered the telecommunications industry in 1990and were the first private mobile phone network in Germany and quickly became one of Europe’s 3rd largest Internet Service Provider. They had diverse business verticals comprising of hydraulics, plastics technology, materials handling and steel tubes. They had decided to spin-off their engineering and automotive industry by 2001. Mannesmann entered the fixed line market in Germany through Mannesmann Arcor, in Italy though Infostrada (majority stake acquired in 1999), in France through Cegetel, and in Austria through Tele-ring. The company strategy was to provide integrated services which required significant capital investment and would face stiff competition.

So, what?

        Both the companies have grown through strategic acquisitions and joint ventures and are aware of the intricacies, complications, and advantages of entering a Joint Venture or being acquired. Additionally, there has been a long history of collaboration between the wo companies in many territories. There are significant economies of scale geographically and market share that come into play for both the companies. Further, the synergies when it comes to Revenues, Costs and Capital Expenditure cannot be ignored when working as a joint entity. However, one needs to consider that both companies have different visions when it comes to conquering the telecommunications market (Mobile Vs Mobile + Fixed).

Competition

        Prominent competition for Vodafone AirTouch and Mannesmann is British Telecom (BT), Deutsche Telekom (DT), France Telecom etc. The competition focused both on mobile and fixed line networks as against Vodafone which believed that voice, data, and internet would move to wireless. When compared to its competitors Vodafone was okay with taking risks. They continued focusing on wireless and international expansion through acquisitions and alliances. Vodafone’s strength lay in its low-cost structure and focused strategy.

So, what?

        The competition has a strong foothold in Eu and can leverage their existing customer base. They would also move into wireless and try to match costs with Vodafone. Further, there is consolidation going on in EU markets with the Prime Minister quoting, “We live in a European market today where European companies are taking over other European companies.” If the hostile take-over fails, both Vodafone and Mannesmann become vulnerable to their competitors.

Technology

        Convergence of fixed-line telephony and wireless telephony dominated the mobile industry. There was threat of fixed line telephones being substituted by mobile phones. Further, Vodafone believed that voice, data, and internet were moving into wireless owing to high return on investment and less capital expenditure. However, standardization of the type of network to be used (GSM / 3G/ CDMA/ TDMA) had not been confirmed yet.