Mannesmann AG, parent of Germany’s top mobile communications company, confirmed last week it made a bid to buy U.K. mobile carrier Orange plc, which Orange’s largest shareholder accepted.
The bid values Orange, the United Kingdom’s third-largest mobile operator, at about $32 billion.
Hong Kong-based Hutchison Whampoa, which holds a 44.8-percent stake in Orange, has accepted the offer, according to people familiar with the situation. The offer now must be approved by the company’s remaining shareholders, which include 5-percent owner British Aerospace and private and institutional investors, holding 50.2 percent of Orange.
Some analysts speculated Hutchison might use the money it would receive from the sale of its interest in Orange to invest in the U.S. market, possibly increasing its stake in Global System for Mobile communications carrier VoiceStream Wireless Corp., which has been consolidating the U.S. GSM market. Hutchison is VoiceStream’s largest shareholder.
If an agreement is reached, a combined Mannesmann/Orange would rank among the top wireless carriers in Europe-including Telecom Italia Mobile and Vodafone AirTouch plc-with a total of more than 10 million subscribers.
Orange recently announced its customer base increased by 520,000 customers during the third quarter for a total subscriber base of nearly 3.5 million. Mannesmann had 6.6 million wireless customers at the end of the second quarter.
In addition to its networks in the United Kingdom, Orange also holds interests in operators in Switzerland, Belgium and Austria and has operations in France and Germany. Mannesmann’s portfolio includes stakes in Italy’s Omnitel Pronto Italia, France’s SFR and a new license in Austria.
Some analysts say the $32 billion price tag for Orange represents a significant premium for the company. Analyst firm Strategy Analytics said the deal values Orange at about $8,700 per equity subscriber, compared with the $5,300 per subscriber Deutsche Telekom paid earlier this year for One 2 One, the fourth-largest mobile operator in the United Kingdom. Mannesmann had shown an interest in One 2 One but eventually dropped out of the bidding.
The Mannesmann bid also is richer than the $4,800 per subscriber France Telecom last week agreed to pay for a majority stake in Germany’s E-Plus.
“The acquisition of Orange will not come cheaply for Mannesmann,” said Strategy Analytics in comments about the Orange bid. “The apparent willingness of Mannesmann to pay the significant premium Orange carries over rival One 2 One is partly an indication of its better performance in the U.K. market (measured by market share, ARPU and churn rates), but predominantly due to the better fit Orange offers in terms of its regional telecoms strategy.
“Not only does Orange provide Mannesmann with a significant presence in the U.K. market, but Mannesmann also finally gains access to the Swiss market (through cellular operator Orange Communications S.A.), which has been an undesirable hole in the center of its European coverage map,” said Strategy Analytics.
The bid, however, may have surprised Vodafone. Some analysts had speculated Vodafone was cozying up to Mannesmann in anticipation of an eventual bid for the company, driven by plans Mannesmann is considering to separate its telecom business from its other operations. Vodafone is a minority investor in Mannesmann’s German and Italian interests.
Published reports indicate Vodafone might consider launching a hostile takeover of Mannesmann, particularly if Mannesmann’s stock price continues a slide that began in the wake of its bid for Orange.
“The enlarged Mannesmann/Orange will cause problems for Vodafone,” said Strategy Analytics. “An acquisition of Mannesmann by Vodafone would now be an expensive and awkward affair, while Mannesmann also has much less to gain in terms of increased European presence by such a move.”
Phil Kendall, senior industry analyst at Strategy Analytics in England, said Mannesmann’s attempt to buy Orange rather than tie-up with Vodafone points to its desire to remain independent and in control.
“If it merged with Vodafone, it would be a small partner in that deal, and now it’s a big player in its own right,” said Kendall. “I suppose their view is they would rather be the lead player in a medium-sized group than a small player in a much larger group.”
Kendall noted a combined Mannesmann/Orange would rival Vodafone AirTouch in terms of its European presence.
The bid comes amid a rash of European consolidation, including France Telecom’s E-Plus deal and the pending merger between Norway’s Telenor and Sweden’s Telia, which this month got the blessing of European regulators.
“I think many of the European operators, and certainly many of the U.K. operators, got quite nervous when Vodafone joined up with AirTouch,” said Jake Saunders, senior telecom analyst at The Strategis Group in London. “The big issue was somebody had to break through the transition phase of going from one size to another, and now it’s very much moving into the pan-European player environment.”
