Finance Merger and Acquisition

Running head: FINANCE MERGER AND ACQUISITION
Finance Merger and Acquisition
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1FINANCE MERGER AND ACQUISITION
Contents
The rationale behind the acquisition of Orange by Mannesmann:..................................................2
Strategic implications to Vodafone:................................................................................................2
Description of swap:........................................................................................................................2
Acceptability of offer to shareholders of Mannesmann:.................................................................3
Acceptability of offer to shareholders of Vodafone:.......................................................................3
Market expectations of deal:............................................................................................................3
Present value of synergies:..............................................................................................................4
Hurdles in front of Vodafone:..........................................................................................................4
The reason for eagerness:................................................................................................................4
References:......................................................................................................................................6

2FINANCE MERGER AND ACQUISITION
The rationale behind the acquisition of Orange by Mannesmann:
The objective behind the acquisition of Orange by Mannesmann was mainly to be the leader in
telecommunication industry in the European market. It was expected that the resulting synergy
subsequent to the merger of Orange and Mannesmann would help the later to not only be the
leader in the European telecommunication market but also to achieve significant amount of
operating profit in the future. The acquisition of Orange would help Mannesmann to effectively
become the leader in the European market and subsequently to be the world leader with
additional acquisitions in the future. With the opportunity to be the leader in the European
market Mannesmann paid a 22% premium over the existing stock price of Orange at the time of
acquisition. The payment of 22% premium was understandable as the expected synergies
subsequent to the acquisition of Orange was significantly huge (Jeong and Weidhaas, 2016).
Strategic implications to Vodafone:
The successful acquisition of Orange by Mannesmann helped the later to come close to be the
leader in the telecommunication market in Europe right behind Telecom Italia Mobile. With the
subsequent synergies that resulted from the acquisition of Orange PLC to the Mannesmann
helped the company to strongly compete against the Vodafone Airtouch PLC. Thus, the
acquisition of Orange PLLC by Mannesmann certainly affected the Vodafone and its hostile
takeover bid of Mannesmann.
Description of swap:
The Vodafone PLC on 17th December valued Mannesmann at €138 billion. The swap ratio on the
basis of the above valuation was 53.7 Vodafone shares for each share of Mannesmann. On that
date the takeover bid was calculated by adding 72.2% premium on the closing share price of

3FINANCE MERGER AND ACQUISITION
Mannesmann as on October 18. The market value of Mannesmann’s contribution to the firm
estimated at $121 billion as on the 17th December.
On December 17, 1997
Mannesmann Vodafone
Number of outstanding shares: 517.9 million
shares
31,105 Million
Swap ratio 53.7 shares for each share of
Mannesmann
Number of shares to be issued to Mannesmann
(517.9 million x 53.7)
27811.2 million shares of
Vodafone to acquire
Mannesmann
Acceptability of offer to shareholders of Mannesmann:
Since a 72.2% premium over the closing price of shares on October 18 was offered by Vodafone
and an affordable swap rate of 53.7shares in Vodafone for each share at Mannesmann is certainly
preferable for the shareholders of Mannesmann. From the point of view of Vodafone
shareholders however, the offer made to takeover Mannesmann is not acceptable. Hence, the
shareholders of Vodafone would feel hard done by the offer of the company to take over
Mannesmann with a swap rate 53.7 shares in Vodafone for each share of Mannesmann (Kinsella,
2017).