LONDON -- British cell phone giant Vodafone on Monday accused its German bid target Mannesmann AG of diversionary tactics spiced with "misleading claims," but said it was confident investors would not be distracted.
In a move to upstage Mannesmann ahead of its crucial defense document on Friday, Vodafone AirTouch dismissed as untrue Mannesmann's warnings of structural and regulatory risks ahead of the close in February of the world's largest hostile bid.
"Mannesmann is attempting to mislead shareholders," stated Vodafone, vowing to disprove Mannesmann's claims of superior growth when it unveils details of a single, global platform for booming mobile data and Internet services on Tuesday.
In a country which has yet to see a successful hostile takeover by a foreign company, Mannesmann has warned that Vodafone could be forced to dodge through a maze of corporate and regulatory hurdles that could delay or derail the bid.
But some analysts said Monday that Vodafone's statement -- that rejected Mannesmann's warnings that range from questions of control to tax issues -- proved that the world's biggest mobile phone group was taking control of an all-share bid now valued at 131 billion euros ($134.2 billion).
"It looks like one hand is on the steering wheel and the other clasped around Mannesmann's throat," one said.
Vodafone and Mannesmann's shares clawed back from recent losses to trade over 4.7 and 5.3 percent higher at 300-1/2p and 236.90 euros respectively, helped by an upgrade to "strong buy" on both companies from Credit Suisse First Boston. The pan-European Dow Jones telecoms index stood 3.8 percent higher at 734.4 at 1420 GMT.
Mannesmann's camp argues that Vodafone will need 75 percent of its voting shares before it can wield control, which could cost up to 60 billion euros ($61.46 billion) in cash and without which it would be impossible to restructure the company.
This is because Vodafone might win only just over 50 percent when its bid officially closes on 7 February, leaving the group with a large minority whose rights need to be protected when Vodafone demerges part of Mannesmann.
In similar cases on the European continent, bidders have put in place a so-called "domination agreement" to win complete control over their targets, which has traditionally led to a further cash offer being made to minority shareholders.
But Vodafone insisted that clinching over 50 percent of its partner in Germany, Italy, and France would be sufficient to successfully demerge Orange Plc, the British cell phone group it has to spin off to win regulatory clearance -- as long as Mannesmann's management cooperates.
And it said it was under no obligation to offer a cash alternative to minority shareholders, who would be "fairly compensated" for the loss of Orange.
Yet analysts remain unconvinced.
"It would be potentially very awkward for Vodafone from a timing, valuation, legal, logistical perspective, to demerge Orange unless they have 75-100 percent," one said. "Mannesmann says Vodafone needs a domination agreement and Vodafone says it doesn't. The reality is probably somewhere in between."
The German engineeering and telecoms group also argues that regulatory issues could delay the merger for up to 12 months and that tax is a significant cost for German and US investors.
But in a display of confidence, Vodafone has not made its bid conditional on European regulatory clearance -- just as Mannesmann did in its bid for Orange. Vodafone expects the European Commission to approve the deal during its initial Phase 1 review period, which should take no more than two months.
As claims and counter-claims fly, Mannesmann says investors will have to pay German capital gains tax, as a 5 percent voting restriction enshrined in its group rules prevents Vodafone from structuring a tax free deal.
But Vodafone said the deal would be tax free for all German institutional investors apart from a small number who held their shares for their own account. It would also be tax free for German retail investors who have held shares for over a year.
As far as US investors were concerned, Vodafone said it believed a "substantial" proportion were tax exempt.
Although the bid closes on 7 February, under German takeover rules it will remain open for at least another five days to give Mannesmann investors extra time to reach final decisions.
"This is new territory for a lot of corporate Germany," said one financier. "The German legal framework is much less developed than in the UK or the US, and there is a lot less case law. At least in the UK, you can normally point to 25 precedents. Here, there may be two."
