Mannesmann's Ambitious Acquisition of Orange Raises Concerns

Strategic Insights -

Mannesmann's surprise announcement of a cash and shares deal to acquire Orange, the UK's third largest mobile operator, has left investors stunned. Despite a valuation of £29bn, concerns over the price and increased debt has led to a drop in shares from £144.80 to £131.80. The deal, which makes Mannesmann the largest mobile phone operator in Europe, values Orange at £29bn, while taking on Orange's £3bn debt.

Key Takeaways:

  • The acquisition values Orange at £29bn, making Mannesmann the largest mobile phone operator in Europe.
  • Mannesmann is issuing £17.5bn in new shares and taking on £12bn in additional borrowings to finance the deal.
  • Analysts estimate that earnings per share could be diluted by up to 20% next year due to the acquisition.
  • Mannesmann chairman, Klaus Esser, believes that the acquisition is correct, citing the "absolutely excellent" fit between Orange and Mannesmann.
  • The acquisition will give Mannesmann a controlling stake in Orange, allowing it to secure access to customers and offer attractive packages.
  • Mannesmann's strategy is to secure a dominant position in the European telecommunications market, having previously paid £7.6bn for control of Omnitel and Infostrada.
  • Hutchison Whampoa, Orange's largest shareholder, will receive a 10.2% stake in Mannesmann in exchange for its 44.8% stake in Orange.

Statistics:

  • Acquisition value: £29bn
  • Orange debt: £3bn
  • New shares issued: £17.5bn
  • Additional borrowings: £12bn
  • Potential earnings per share dilution: up to 20%
  • Total investment in Mannesmann by Hutchison Whampoa: allegedly £33bn

Sources:

  • Mannesmann press release (no date)
  • Financial Times, "Mannesmann shares fall 9% on takeover deal", 1999
  • CLSA Securities, Hong Kong (no date)
  • Financial Times, "Hutchison and Mannesmann seal pact", 1999