Row as Vodafone launches biggest takeover battle

THE WORLD'S biggest takeover battle - Vodafone Airtouch's hostile pounds 76bn bid for Mannesmann of Germany - was finally launched yesterday morning. It immediately turned into political warfare when the German Chancellor, Gerhard Schroder, warned the British company to back off.

Mr Schroder's intervention follows backing from Tony Blair for Vodafone and sets the scene for the most brutally fought and politicised corporate battle Europe has witnessed.

Asked about his reaction to the unsolicited Vodafone offer, which would expand the world's biggest mobile telephone operator, the German Chancellor said he would advise the hostile bidder to show "considerable prudence".

Vodafone launched its increased all-share bid after the Mannesmann board rejected a friendly pounds 64bn approach last Sunday and made clear that it was not interested in further negotiations. If the bid succeeds, it would create a combined group worth pounds 140bn with 42 million subscribers worldwide and the potential to serve 500 million customers. It would also be the crowning achievement for Vodafone's chief executive Chris Gent, a close friend of John Major and the archetypal Englishman with his passion for rugby, cricket and sports cars.

Mr Gent pledged there would be no job losses in Germany or asset stripping of Mannesmann and called on the company to let its shareholders decide rather than falling back on the legal barriers that protect most German corporations from foreign takeover.

Without naming either company, Mr Schroder said: "Hostile takeovers destroy a company's culture. They harm the target but also the predator in the medium term." Referring to Germany's two-tier corporate structure, which allows trade unions to sit on the supervisory boards of companies, he added: "Those who launch these operations in Germany underestimate the virtues of co-determination. For these two reasons I would advise considerable prudence to those who want to launch into such adventures."

Mr Gent said the German government should stay out of the contest. "I believe the German Chancellor, like our Prime Minister, will leave the matter to shareholders. I don't think we are a political football. All we're requesting is that shareholders decide. It is very strange that you would become nationalist or xenophobic, especially in the matter of communications."

Hostile takeovers are virtually unheard of in Germany, where one shareholder is prevented from owning more than 5 per cent of a company and where there are cosy cross-shareholder relationships between big banks and large corporations.

An unsolicited bid from a foreign company is unprecedented. The German government is likely to come under pressure from the UK not to block the deal, not least because two of Britain's mobile operators are coming under the control of German companies.

Deutsche Telekom bought One2One for pounds 8.4bn earlier this year and Mannesmann itself has made an agreed pounds 22bn offer for Orange, already Britain's third biggest mobile operator. If the Vodafone bid succeeds, it would create a hugely powerful force in Europe with mobile and fixed telecoms interests in 15 countries. In addition to Vodafone, the market leader in the UK with 7 million subscribers, the enlarged business would also control three other leading European mobile businesses - D2 in Germany, Omnitel in Italy and Libertel of the Netherlands. The City is awash with speculation that BT, the owner of Cellnet, may be forced to enter the fray, and there are rumours of a counter-bid by MCI WorldCom of the US.

In order to recoup some of its huge outlay on Mannesmann, Mr Gent said Vodafone would sell the German company's engineering, steel and automotive interests. Vodafone would also have to demerge Orange to overcome regulatory controls preventing it from owning more than one mobile operator in the UK.

Even before Vodafone had formally launched its bid, the phoney war between the two sides had reached fever pitch. On Thursday, Mannesmann failed in a legal bid to prevent Goldman Sachs acting as Vodafone's adviser on the takeover.

In theory, Mannesmann, led by chief executive Klaus Esser, could use the rules of its own constitution to thwart the bid. But Mr Gent said: "I believe Dr Esser and his board would not use such devices."