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. Last Updated: 07/27/2016

Vodafone Refines Takeover Tactics

LONDON -- Vodafone AirTouch PLC, the world's biggest mobile phone company, said Tuesday it would start meeting shareholders in the afternoon to discuss at what price it should bid for Mannesmann AG.

Chris Gent, the chief executive of the British-based cell phone giant, told a telephone conference call that Vodafone plans to hold another board meeting Thursday and present a fresh bid to Mannesmann ahead of its German partner's board meeting Friday.

"I suspect you'll know more about the situation by no later than Monday next week," Gent said. "[But] it depends on how confidential our shareholders are."

Given the speed with which Mannesmann rejected Vodafone's initial 103 billion euro ($106 billion) offer Sunday, Gent said that the size of a fresh approach may also be announced by Mannesmann earlier. Analysts say this could value Mannesmann at up to 127 billion euros.

The German industrial group, which has partnerships with Vodafone in the prized German and Italian markets, said earlier it would regard any further Vodafone approach as unfriendly.

"You go in and make a proposal to a long-standing partner and you would expect to have a negotiation," said Gent, hoping to create the largest established pan-European network in a fast-deregulating market.

"And again before they know even what we are prepared to propose ... they are rejecting it, which is extraordinary.

"That is not in their shareholders' interests," he said.

Gent is hoping that his counterpart at Mannesmann, Klaus Esser, will put Vodafone's fresh bid to his board Friday.

But he noted that Esser had rejected his previous offer without consulting the board or shareholders.

And he added: "We would be prepared, if necessary, to proceed with an unsolicited bid."

With over 60 percent of Mannesmann's shareholders outside Germany, Vodafone is hoping to win backing from investors concerned about Esser's hefty $32 billion bid for British cell phone company Orange PLC.

There is no precedent for a hostile bid by a foreign company in Germany, but Gent said this did not mean he would not succeed. And he said he had been contacted by "a lot" of shareholders backing a Mannesmann bid. Gent also says he has had a number of calls from "distressed Mannesmann shareholders." Vodafone had listened to their concerns that Mannesmann was not acting in their interests and was paying too much for Orange.

"We think we have a very good chance of achieving 50.1 percent of the [Mannesmann] shares and at that point, we would be in a position to change the supervisory board which selects the management," he said.

However, under Mannesmann's company rules, a shareholder cannot vote more than 5 percent of their stake. Although this voting restriction will be changed June 1, Vodafone is hoping to have secured Mannesmann by then.

Gent noted that Esser had promised not to hide behind company rules.

"If he had a serious [defense] proposal which his shareholders supported strongly, then he would have a duty to them to call the appropriate meeting and ask them to remove the 5 percent rule before June [and let them decide].

"But if he chose not to, we'd go to June anyway," he added, noting that completions in takeovers often take six months.

Another complication with a Vodafone bid for Mannesmann is Mannesmann's acquisition of Orange, because under U.K. takeover rules Vodafone cannot own two British mobile phone companies.

Analysts had expected a presale agreement for the business, but Gent said Vodafone had not been in sale talks - although it had been approached by merchant banks - and currently planned to demerge the company, have nothing to do with its management, and allow it to "go on its sweet way again."

Any discount from such a demerger, which would see Vodafone's enlarged shareholder base gaining shares in Orange, would be more than matched by earnings enhancement from a Mannesmann takeover, Gent stated.

Vodafone also plans to spin off and float Mannesmann's engineering business "a year or so" after it has gained ownership of the company.

Gent said he expected modest dilution in EBITDA, or earnings before interest, tax, depreciation and amortization, over the next two years before benefits from a Mannesmann deal kick in.

And he dismissed an injunction sought by Mannesmann against Vodafone's longtime advisers, U.S. investment bank Goldman Sachs, as a "rather defensive and desperate" move. Goldman has withdrawn its services until a court hearing Thursday.