Outlook: Vodafone damned if it does, damned if it doesn't

VODAFONE AIRTOUCH yesterday launched a full takeover bid for Mannesmann. That, in any case, is what its RNS statement to the Stock Exchange entitled "proposal to create Europe's global telecommunications leader" looked like anyway. In nearly every detail, the statement resembled a formal offer. The document spelt out the supposed benefits, waxed lyrical about the creation of a world leader, detailed the value of the merger synergies, guaranteed employment rights at Mannesmann and even promised boardroom seats for its directors. The only thing missing was - er - the terms.

This rather crucial element has been left to one side while Vodafone's Chris Gent and his advisers continue to agonise over whether it is indeed possible to mount as a foreign predator a hostile takeover bid for a German Aktiengesellschaft.

If the case for merger is as compelling as Mr Gent puts it, then Mannesmann's Klaus Esser should be bending over backwards to facilitate it. He's not, either at the mooted price of pounds 64bn suggested to him last Sunday, or any other to judge from what he's said since. Whether for reasons of national and personal pride, or because he really has the dynamite defence he claims up his sleeve, he's not playing ball.

So the next stage is for Mr Gent to come up with a new improved offer that he can put directly to the Mannesmann board and its shareholders. Here again, the road ahead is strewn with obstacles. The main poison pill - that no one can exercise more than 5 per cent of the votes - expires next June and in any case could possibly be voted null and void before then. Even so, this is virgin territory Vodafone is about to enter. Hostile takeover bids just don't happen in Germany and it is not at all clear how this test case will pan out.

For Mr Gent, the stakes are high. If he tries and fails, he'll have soured relations with his main European partner for good. It will be only a matter of time before he's frozen out of Omnitel and D2 altogether, leaving him with no credible European assets to play with. By the same token, if he doesn't try, he may well get frozen out anyway. Meanwhile, there's the big bad wolf of British Telecom sitting on the sidelines, threatening to make this into a contested, as well as a hostile takeover situation. In that eventuality, it would be an issue of which company's shareholders were prepared to take the most dilution.

Mr Gent was bravely claiming yesterday that doing this deal was not critical to the group's future, that there were plenty of other European mobile telephony assets around that would fit his purpose too. But in truth it is hard to know what these assets are. Nearly everything else is already tucked away in larger European groupings.

The establishment of a convincing European footprint for Vodafone would in these circumstances effectively be left relying on successful applications for the next generation of mobile licenses. The new networks would take time to build and establish and in the meantime Vodafone might have lost its present lead in the fast growing area of data transmission via mobile phones.

So in a sense, Mr Gent is damned if he does and damned if he doesn't. At least if he tries, there's a chance he'll succeed, even though, as this column pointed out yesterday, it is highly dangerous for Vodafone to take on the extra management challenge of Mannesmann so soon after its AirTouch and Bell Atlantic deals. The only sure fire winners in all this are the investment bankers and the lawyers, who, with the deal now certain to go hostile, will see their already stratospheric fees ratchet up by another order of magnitude.