Gent insists Mannesman payouts did not seal deal

Former Vodafone chief says "appreciation awards" were decided after the huge takeover was agreed
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The Independent Online

The former Vodafone chief Sir Christopher Gent told a German court yesterday that the company's controversial takeover of the mobile phone giant Mannesmann four years ago succeeded because of "massive shareholder pressure" and not the multimillion-pound bonus payments to top executives during the buyout.

The former Vodafone chief Sir Christopher Gent told a German court yesterday that the company's controversial takeover of the mobile phone giant Mannesmann four years ago succeeded because of "massive shareholder pressure" and not the multimillion-pound bonus payments to top executives during the buyout.

Sir Christopher was appearing as a key witness at a state court in Düsseldorf in what has been described as the most sensational corporate trial in German history.

Former Mannesmann supervisory board members including the Deutsche Bank chief, Josef Ackermann, and other leaders of corporate Germany face charges of illicitly receiving ¤57m (£38m) in golden handshakes when Mannesmann was bought out by Vodafone in early 2000 in a ¤150bn merger.

However Sir Christopher, who looked relaxed if somewhat irritated by the judge's questions, told the court Mannesmann's decision to eventually back down and merge with Vodafone had nothing to do with the substantial bonus payments given to Mannesmann board members. Citing the predicament of Klaus Esser, Mannesmann's chief executive during the takeover bid, Sir Christopher said it was shareholder pressure that finally clinched the deal. "Klaus was under massive, sustained and increasing pressure as he was losing the support of his shareholders not only internationally but in Germany as well," Sir Christopher said.

The trial has been condemned in Germany and abroad as an attempt by the German judiciary to penalise the paying of large bonuses to company executives during takeovers ­ a practice considered normal in America and Britain. German business leaders have argued that if the Mannesmann executives are found guilty it could deter German companies from making bold management decisions in future.

A spokesman for Sir Christopher told The Independent yesterday that British business circles regarded the Mannesmann trial as an "extraordinary event".

The five former Mannesmann executives on trial include Mr Ackermann, Mr Esser, Klaus Zwickel, the former head of the powerful IG Metall engineering workers' union, and two other former board members, Jürgen Ladberg and Joachim Funk. They are charged with "breach of trust" and if found guilty, could face up to 10 years in jail.

The prosecutor, Johannes Puls, has argued during the trial that the size of the bonuses went against the interests of Mannesmann and its shareholders and that they were therefore illegal under German corporate law. "The sole reason for the bonuses was the support for the friendly takeover of Mannesmann by Vodafone," he said.

However Sir Christopher said the "compensation payments" made to the Mannesmann executives were "never a condition of the takeover deal" and were agreed after the buyout had been concluded.

He conceded however that traditional German company practice had not played a significant role: "As a precedent we were using international standards, not just German ones," he told the court.

In a prepared statement read out to the packed court room, Sir Christopher provided a series of insights into the steps that led up to Vodafone's February 2000 buyout of Mannesmann ­ at the time the biggest takeover in corporate history.

Sir Christopher said Vodafone made an initial approach to Mannesmann in January 1999 offering a full partnership between the two companies. However at that and subsequent meetings that year Mr Esser had been "defensive and evasive" and had even kept Mannesmann's rival takeover of the mobile phone competitor Orange a secret.

"Klaus Esser turned from being an ally into a strategic competitor," Sir Christopher said. Vodafone's repeated offers for co-operation between the two companies were dismissed, he said.

In early November 1999 Vodafone launched a hostile bid for Mannesmann after putting the suggestion to shareholders. News of the potential deal sent Vodafone shares rocketing 47 per cent.

Mannesmann finally agreed to the takeover in early February 2000, and the issue of what Sir Christopher described as "appreciation awards" was decided afterwards.

Justifying the payments in Mr Esser's case, Sir Christopher said: "Klaus Esser knew that he would lose his job. We thought it was appropriate that he should receive recognition for the tremendous work he did for his shareholders. He was not a shareholder himself and had no share options, so he could not benefit personally from the takeover."

Many observers said yesterday that Sir Christopher had done enough to get the German executives off the hook. The case continues, and lawyers for both sides are scheduled to meet next week ahead of a possible climbdown by the prosecution.

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