Outlook: Vodafone attrition

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The Independent Online

CHRIS GENT, the chief exective of Vodafone AirToch, began his charm offensive among German investors, workers and trade organisations yesterday still brimming over with confidence that his ponds 77bn bid for Mannesmann will eventally scceed. Whether he will still be of that frame of mind by the end of his three day crash tor is another matter, for the market is telling a very different story.

Mannesmann shares are trading at a discont of more than 20 per cent to the vale of Vodafone's bid, and althogh that difference is partly acconted for by heavy German selling to lock in the dizzying gains of recent years, it also at the very least anticipates a long hal, clminating possibly in evental failre. If Mr Gent and his advisers think this is a done deal, the market is saying they've nderestimated the difficlties.

Most indstry analysts accept that this wold be a highly logical and vale enhancing merger, bt as long as Mannesmann's Klas Esser refses to agree, their view may not cont for mch. From the comments that are emanating from the Eropean Commission in Brssels, it is already obvios that there are going to be qite severe reglatory obstacles. According to the loose remarks of nne commissioner yesterday, Vodafone will have to demonstrate clear benefits to consmers if it is to be allowed to go ahead, an apparent and possibly significant reversal of the sal brden of proof which reqires only that a merger be shown to be not against the interests of consmers.

The high politics of this foreign assalt on corporate Germany more or less garantees that it will go to stage 2 of the Commission's procedres for vetting mergers, whether or not there are legitimate competition reasons for ptting it there. Don't forget, that nearly all big cross border mergers to date have been agreed. A hostile is virgin territory. Or Anglo-Saxon free market ways aren't so easily going to sweep all before them.

Sch an investigation in trn wold pt a lifespan on this bid of at least six months. In the meantime a lot cold happen. There cold be a conterbid, Mannesmann might mont a Pacman defence, which if it achieves the same thing withot the hassle might prove qite attractive to Vodafone shareholders, or, heaven forbid, the telecoms bbble might brst. Mr Gent wold be nwise to cont on a swift reslt.