Hostile bid leads Gent into uncharted waters

NEWS ANALYSIS German takeover rules mean that Vodafone's battle with Mannesmann must be fought outside the usual conventions

IF YESTERDAY was Wednesday, then it must have been Dusseldorf. Chris Gent, the chief executive of Vodafone AirTouch, was in Mannesmann's home town last night on the third day of his charm offensive across Germany.

Mr Gent may know which city his bruising schedule takes him to next as he seeks to persuade Germany's political and financial institutions of the merits of Vodafone's hostile pounds 76bn bid for Mannesmann. But in many other respects, he is sailing in unchartered waters. Not only is this Europe's first real cross-border takeover battle, but it is being fought out under a set of rules - the German takeover code - which were palpably not designed for such a drama.

After meeting the mayor of Dusseldorf, Mr Gent held a news conference to update the media on the bid. During that briefing he made a series of assertions. Some may turn out to be correct. Others could certainly not have been made were this bid battle taking place in the UK. Here is a selection:

Vodafone will send its offer document to Mannesmann shareholders by the end of November. This was either a slip of the tongue or a mistranslation since Mr Gent does not speak German. Vodafone later issued a correction saying the document would be out before the end of December. Even this timetable is tight. The offer document will run to between 500 and 600 pages since it will also have to incorporate details of the merger of Bell Atlantic and AirTouch's US operations, which even Vodafone shareholders have not yet received. Nor can Mr Gent guarantee reaching all Mannesmann's shareholders, since the company does not have a publicly available share register.

It is said to have hired a former colonel in the German army to police access to what shareholder information it is prepared to make available. In point of fact, German takeover rules do not require Vodafone to circulate all Mannesmann's shareholders anyway - publishing a synopsis of the offer document in several newspapers may suffice.

The outcome of the bid will be known by the end of January. This depends on whether the European Commission chooses to launch a full-scale inquiry into the merger, which could take four months. Provided the EC stands aside, then the Vodafone bid will run on a 60-day timetable, the same period that applies under UK Takeover Panel rules.

The German code is modelled on the UK's but has a far less elaborate structure of rules. The bid must stay open for a minimum of 28 days from the date when the offer document is posted and the target company must issue its defence within 14 days of the offer being posted. Otherwise there are no other deadlines.

Vodafone says its offer is "final" and rules out an increased bid. If this were the UK, then Vodafone would be held to that statement. In Germany it means nothing. There is little to stop the bidder or the target company releasing new information into the market at any stage of the bid and nothing to stop the bidder raising his offer, even if there is no rival and higher bid in sight.

Nor is there anything expressly to prevent advisers on either side buying shares in Mannesmann in order to vote them for or against the deal. Were Mannesmann's advisers to resort to this to defeat the offer, Vodafone could appeal under a general rule designed to prevent "frustrating action".

Vodafone has the "overwhelming support" of Mannesmann shareholders worldwide. This is definitely not the kind of statement Mr Gent could have got away with here. For a start, he does not know who three-quarters of them are. For another, Vodafone has not even posted its offer document, let alone reached the first closing date. But there again, this is Germany. If Vodafone's offer fails, Mr Gent could turn around and table a new bid the next day. Unlike in the UK, there is no cooling off period requiring a hostile bidder to wait a minimum time before rebidding, meaning that Mannesmann could, in theory, find itself under continuous siege.

Vodafone's advisers, Goldman Sachs and Warburg Dillon Read, have pledged to observe "standards of best international practice" in pursuing the bid. But they have not volunteered to play by the rules of the Takeover Panel, for instance, even though an estimated 25-30 per cent of Mannesmann shares are now held in London. A further 20 per cent or so are held in the United States, 30 per cent are in Germany and the rest are spread about.

The one subject on which there does seem to be common ground between the two sides is that the proposed European Union directive on takeovers is a red herring. Germany's industry minister reportedly wants a new EU- wide policy to be implemented quickly and EU ministers may approve the directive when they meet on 7 December.

The reality is that the directive is actually designed to make cross- border European mergers easier, not harder. Even if the Council of Ministers does approve it next month, then the directive still has to be debated by the European Parliament and then ratified - a procedure that could take until next summer.

If Germany sought to amend the directive at this stage to make hostile bids more difficult, then the directive would be delayed still further.

What rare hostile bids the Continent has witnessed - such as Olivetti- Telecom and Fortis-Generale - demonstrate that, in the absence of a proper set of rules, pretty much anything goes.

For Vodafone and Mannesmann that is likely to mean a long, drawn out and exhausting battle with no idea of what is coming next and even less idea of which side will ultimately triumph.

For everyone else though, it should prove top-class entertainment.

Outlook, page 21