Mannesmann moves on Orange in bid to forge European network

* Mannesmann offers to buy Hutchison Whampoa's 44.8% stake for £14 a share

FOR THE fourth time in two months, Britain's telecommunications industry faced invasion from overseas corporate raiders when Germany's Mannesmann confirmed yesterday that it was negotiating a possible £18bn takeover of Orange, the mobile phone group.

FOR THE fourth time in two months, Britain's telecommunications industry faced invasion from overseas corporate raiders when Germany's Mannesmann confirmed yesterday that it was negotiating a possible £18bn takeover of Orange, the mobile phone group.

Coming on the heels of Deutsche Telekom's £8.4bn buyout of One-2-One in August, Mannesmann's move underlined the growing momentum to assemble pan-European telecoms networks. Rapid growth and the onset early in the next century of Internet-enabled "smart" phones have made mobiles the hottest corner of Europe's telecoms sector.

Orange, its controlling shareholder Hutchison Whampoa, and Mannesmann all issued statements to stock markets in Germany, Hong Kong and London. Hutchison, the Hong Kong-based conglomerate that owns 44.8 per cent of Orange, said it had received an "approach" that could result in a takeover offer for the UK mobile group.

Mannesmann said: "Mannesmann confirms it is in discussions which may, or may not, lead to an offer being made for Orange." Orange added: "The board notes the recent press comment and confirms it has received an approach."

Commenting on the telecoms merger boom, one Orange executive said: "It's happening all over the place," and added: "Whether this will work, I don't know. It's very tricky."

Orange is Britain's newest mobile phone company, and third in size with 18 per cent market share. It only recently became profitable. Unlike Vodafone, BT Cellnet and One2One, Orange has focused on more lucrative contract customers rather than pre-pay customers, even though it is the latter which has spurred the recent surge in mobile growth.

Confirmation of the talks sparked a buying frenzy in UK telecoms stocks as investors sought to gain exposure to the near deal-a-day frenzy sweeping the industry. Orange stock rose 34p to 1,373p amid reports that Mannesmann, which also runs mobile networks in Germany and Italy, would offer £14 per share. Other telecoms players also fared well - BT, the best positioned operator with more than £3bn invested in European ventures, added 50.5p to 986p and Telewest gained 10.25p to 246.5p.

Alternative network operators - the focus last week after Global Crossing's £1bn acquisition of Racal Telecom - made further gains as Energis added 56p to 1,725p and Colt Telecom rose 79p to 1,600p. Vodafone, however, closed down 10.5p at 273.5p amid rumours it was planning a hostile bid for Mannesmann to blunt the conglomerate's move to create a European mobile powerhouse.

Analysts said a hostile bid for Mannesmann was unlikely given German stock market rules that stop minority investors from being forced to sell shares to a bidder that gains majority control.

They also noted that half the members of Mannesmann's supervisory board are employees, and thus unlikely to be sympathetic to a hostile bid.

If a Vodafone counter-bid is unlikely in the wake of its own mega-merger with Airtouch, City observers were sceptical that Mannesmann would quickly seal an Orange takeover. "I don't think a UK investor would be too keen to hold Mannesmann stock," said one analyst.

"Orange stock is quite a valuable currency for Hutchison to pursue its global telecoms ambitions."

Those ambitions have seen the firm, headed by billionaire Li Ka-shing, recently expand its mobile presence in the US to build on operations in Hong Kong, Australia and Israel. Since its debut in the UK in 1994, Orange has added stakes in Swiss, Austrian and Belgian mobile operators, while operating service provider businesses in France and Germany.

Industry watchers said Hutchison was unlikely to want to swap Orange shares for Mannesmann shares. It is also possible Mannesmann's approach could spur counterbids. SBC of the US and France Telecom, which already holds a 30 per cent interest in cable operator NTL, are the most likely predators.

In the current go-go climate for telecoms merger and acquisition plays, any lack of taste for Mannesmann shares in lieu of cash would be likely to prove fatal to its UK ambitions. The German group has already issued bonds worth nearly 10bn euros this year, which could limit its ability to raise the cash needed to convince Orange investors to accept an offer.

But UK investors would be unwise to underestimate Klaus Esser, Mannesmann's chief executive. Since adding the telecoms arm to its long-standing steel tube and engineering operations 10 years ago, the company has passed Deutsche Telekom in the mobile sector and is its main rival in the fixed line market.In May, the Düsseldorf-based company paid Olivetti $8bn for Omnitel. Mr Esser is also well advanced with plans to hive off the telecoms interests into a separately quoted company in 2001.