Vodafone Airtouch’s Bid for Mannesmann

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Robert H. Smith School of Business | Valuation | Case #4 Vodafone AirTouch’s Bid for Mannesmann | |

Executive summary

Vodafone AirTouch, one of the world’s leading international mobile telecommunications companies, was considering launching a formal hostile bid for Mannesmann, a German telecommunications company which is also among the largest telecommunications companies in Europe. If this come true, it will become the largest hostile takeover in the world.
But now we are facing one of the biggest problems during this process---valuation of Mannesmann. After our discussion, we decide to use the DCF method with the information provided in Exhibit 7 and some reasonable assumptions we made about Mannesmann’s future
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Analysis 1. Mannesmann’s Acquisition of Orange PLC - qualitative analysis
It seems that Vodafone’s hostile bid for Mannesmann was triggered by Mannesmann’s sudden interest in acquiring Orange PLC, Vodafone’s rival in the UK market. However, it is reasonable for Mannesmann to set Orange as target from both strategic and economic perspectives.
Strategically, Mannesmann pursued an integrated telecommunications strategy, aiming to be a single supplier of fixed lines, wireless, and internet activities to increase average revenue per user. Besides, control is emphasized to maximize the value inherent in a customer base. Orange meets these requirements with CAGR in number of subscribers of 115.5%, from 1994 to 1998.
Economically, the industry had grown rapidly and the fastest growth had been in the wireless or mobile segment, indicating the fact that Orange, as a third largest wireless operator in the UK with a market share of 18%, can help Mannesmann to gain size and global scale to attract the best global content providers on the best terms. The wireless markets in Europe and in the US are different. In keeping with its European focus, Mannesmann targeted at Orange is reasonable. Furthermore, at company level, Orange is the first to aggressively market mobile data service, prior to other big companies including Vodafone. 2. Mannesmann’s Acquisition of Orange PLC - quantitative analysis
To determine whether Mannesmann

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