Mannesmann takes court action to ban Goldmans from Vodafone fight

HOSTILITIES BETWEEN Vodafone AirTouch and Mannesmann commenced last night, less than 24 hours after the German telecoms company rejected a pounds 65bn takeover offer from Chris Gent, chief executive of the world's largest mobile company.

In a surprise move, Mannesmann sought a High Court injunction to bar Goldman Sachs, an earlier adviser to it, from advising Vodafone, on the grounds that the link constitutes a conflict of interest. Goldman agreed not to advise Vodafone pending a court hearing set for Thursday. "Goldman Sachs believe it has acted entirely properly and has pressed for an early hearing so it can challenge this action vigorously," the investment bank said. Vodafone is also being advised by Warburg Dillon Read.

Sources accused Mannesmann of trying to deflect attention from the strength of Vodafone's takeover offer. "It's a complete diversion," said one.

Observers noted that Mannesmann's advisers, Morgan Stanley and Merrill Lynch, could also face court challenges over potential conflict of interest. Morgan Stanley advised AirTouch when it was merging with Vodafone.Merrill Lynch is also advising Bell Atlantic in a deal, which has yet to close, that will see it and Vodafone merge their US mobile assets.

Meanwhile, top Vodafone executives last night were putting the finishing touches on a presentation to be made today to the City, which is expected to argue the logic of the company's plan to launch a hostile pounds 90bn pound bid for German telecoms and industrial group Mannesmann.

Analysts expect Vodafone to signal its intention to move swiftly toward launching a contested bid. They expect Vodafone will need to offer at least 240 euros per share, but even that may fall short of the premium Klaus Essor, Mannesmann's supervisory board chairman, has in mind.

Dale Robertson at Edinburgh Fund Managers, which holds a Vodafone stake worth over pounds 200m, said shareholders are backing Vodafone managment, but cautioned against a higher bid. "Anywhere up to 230-240 euros per Mannesmann share is still a win-win situation for both Mannesman and Vodafone shareholders."

Analysts expect Vodafone today to unveil interim operating profit of around pounds 940m, including a first contribution from AirTouch, the US mobile operator it acquired in a $62bn agreed deal earlier this year.

But those figures will pale in significance beside Vodafone's expected discussion of its next move after Mannesmann turned down an initial pounds 65bn bid. The offer, reputed to value Mannesmann at 203 euros per share, would have been realised by offering shareholders 43.7 Vodafone shares.

Unconfirmed reports yesterday linked Vodafone with efforts involving Goldman Sachs and Citibank to begin preparing the ground work on a possible 50bn euro syndicated loan to help finance a Mannesmann takeover. Although analysts have expected Vodafone to use its shares as acquisition currency, a substantial cash element could bolster the UK company's chances.

While loathe to build up Vodafone's debt load for the long term, Mr Gent would quickly pare borrowings. One way would be to extend Mannesmann's planned split up.

As a first step, Vodafone could spin off the traditional engineering interests. It could then move to sell the German firm's fixed-line networks and Internet access interests.