A Vodacious Deal

By Charles P. Wallace/Berlin

It's the kind of deal that justifies a bucketful of business superlatives--massive, hard edged, record setting, lucrative. And all this from two companies that most Americans have never heard of--Mannesmann, a giant German telecommunications firm, and Vodafone, a British wireless provider. But the $190 billion merger of the two firms, which was inked last week after nearly five months of run-and-gun takeover negotiations, easily surpassed last month's AOL-Time Warner deal as the largest ever. And it was also proof, in some minds, that European business had finally arrived--albeit late--in the 20th century, complete with hostile bids, Wall Street sharks and Internet-worthy stock prices.

The new firm, which will retain the Vodafone name, is going to be a truly global player, with 42.4 million mobile-telephone customers spread over 25 countries, including the U.S., Germany, Britain and Italy. Big as that network is, Vodafone believes it's just the foundation for a business that may one day claim hundreds of millions of customers in almost every nation on earth.

That's the vision of many telecommunications firms, which recognize that in an age of satellites and fiber optics, it is almost as easy to serve customers in Bhutan as in Manhattan. AT&T, for instance, has formed a joint venture with BritishTelecom, called Concert, that is designed to help build a one-stop global phone network for businesses. This is possible because national phone companies, which were once tightly controlled by governments, are suddenly open to international competition just about everywhere in the world. In coming decades, AT&T, Vodafone and others expect to be competing for customers in places like China and India in the same way they compete today for U.S. and European callers. The mid-dinner telemarketing call ("Mr. Jones, I'd like to tell you about a terrific deal from MCI") is about to go global.

Which explains why the Mannesmann deal got so much attention. David Dorman, who heads the AT&T-BT joint venture, calls the merger with the German company "a jewel" for Vodafone. The sparkle comes from the fact that both firms have a special focus on wireless, mobile communications. Wireless is a key part of the new international telecoms order because wireless systems are far easier to build and maintain than in-the-ground copper or fiber-optic networks. And in an age of globalization, Vodafone--which also owns AirTouch--could offer to let its users roam freely from nation to nation without having to pay the exorbitant special charges that they face today. Observes Frank Wellendorf, a telecommunications analyst with Westdeutsche Landesbank: "Clearly, Vodafone is in a very good position in comparison to other mobile operators."

The technology is surely cool, but last week's deal was also very much about money. The final price for the deal was nearly double what Vodafone had initially offered--a number big enough to seduce even the most recalcitrant Mannesmann shareholders. That, combined with a recent Internet deal between Vodafone and Vivendi, a French conglomerate, made Vodafone into a pan-European power that Mannesmann just couldn't resist.

In addition to rewriting Europe's business rules, the Mannesmann deal marked a political watershed. When Vodafone's proposal was first announced, German Chancellor Gerhard Schroder issued a thinly veiled warning about outsiders interfering with Germany's corporate system. But in the intervening months, although labor unions expressed concern about the deal, the government never again raised the issue in a substantive way.

Although cross-border takeovers were widely predicted to be one of the early benefits of the introduction of the euro by 11 European countries on Jan. 1, 1999, there had been few hostile cross-border transactions before last week's deal. In part, the domestic bias of mergers can be explained by the relative ease of making them work when both companies are in a home market. But government intervention, particularly in France and Italy, has kept foreign banks from making planned bids.

Now that Vodafone has won, the company seems intent on growing even larger. High on the agenda may be a deal with the German publisher Bertelsmann, which owns a 50% stake in AOL's European Internet operations. That would give the company access to Bertelsmann's and AOL's content. And though Mannesman CEO Chris Gent said last week that the current deal is so complicated that it is too early to talk in detail about other possible linkups, no one doubted that they are coming. Europe, it seems, is finally ready to do business at Net speed.

--With reporting by Jennifer Schenker/Paris

With reporting by Jennifer Schenker/Paris