Our Bloomberg newswires here at Fool HQ have been red hot with "people close to" Vodafone AirTouch(LSE: VOD) and a variety of other spurious sources commenting on the company's proposed takeover of Mannesmann. All this tittle tattle isn't very Foolish and clearly can't be relied on. However, the noise has reached such a crescendo, that we felt we should at least make a brief comment.
Vodafone AirTouch has apparently secured the recommendation of the Mannesmann board to their takeover, by offering Mannesmann shareholders a further 2.3% of the equity in the merged company. To be precise, Vodafone is now expected to offer about 59 new shares for each Mannesmann share (against 53.7 previously). At the close of the market today, this revised offer would be equivalent to 352 euros per share. Mannesmann closed at 323.6 euros, a rather stubborn 8% discount to the offer.
The decision would represent a surprising capitulation by Vodafone. The original (and supposedly final) offer was of 47.2% of the company. An extra 2.3% would be worth around £5bn -- enough to buy Boots(LSE: BOOT), Carlton(LSE:CCM) or Rolls Royce(LSE: RR.), among many others. It would also have been more than enough to make absolutely certain of a third generation mobile phone licence in the UK.
Presumably, the thinking is that by paying the extra to secure a recommendation, Vodafone would avoid the problem of having to deal with awkward minority shareholders in Mannesmann. Despite its surging share price, it might feel that it has failed to convince everyone of the merits of the deal. The trouble is that, as news of the possible deal filtered through, the Vodafone share price slid downwards. Ironically, since this is the currency of the deal, it reduced its immediate value to Mannesmann shareholders. As the day wore on, though, the Vodafone price recovered, taking the value of the rumoured deal to about 352 euros.
Mannesmann was all but in the bag already and a increased offer would look expensive and unnecessary. Vodafone boss Chris Gent's excellent reputation could easily absorb any criticism and in a few years time all this would be forgotten, but £5 bn is a lot of money to be throwing around. Klaus Esser, on the other hand, may have just about managed to get himself out of an awful situation. He had previously stated that he would not accept less than a ridiculous 58.5% of the merged company. Now, if he's managed to raise the price just this little bit, he might walk away with some of his damaged credibility restored.
