Mannesmann bids £22bn for mobile phone group Orange

Mannesmann yesterday agreed to buy Britain's third-biggest mobile phone group, Orange, for a headline £19

Mannesmann yesterday agreed to buy Britain's third-biggest mobile phone group, Orange, for a headline £19.8 billion sterling (€30.71 billion) plus £2 billion of debt.

Orange was an unsuccessful bidder for the third mobile phone licence in the Republic. That licence was won by Meteor, a US-Irish consortium. Orange appealed the decision to the High Court, which found that the tendering process had been objectively biased against Orange. The matter is now before the Supreme Court.

The offer of 0.0965 new Mannesmann shares and £6.40 cash for each Orange share - worth £16.29 per share at Wednesday's close - was unveiled in the early hours yesterday after just 10 days of talks.

The deal is at a premium of 21.6 per cent over Orange's closing price earlier this week when bid talks were first announced.

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Shares in fast-growing Orange - which floated at 205p in 1996 - remained below the offer price, rising by 65p to £14.47 sterling amid some investor reluctance to take Mannesmann paper.

In a move that highlights a wave of consolidation sweeping the industry, the German company is paying 2.6 times the transaction price paid by arch-rival Deutsche Telekom for Orange's smaller British rival One2One in August. But chief executive Mr Klaus Esser said Orange's growth would outstrip that of One2One and quoted analyst forecasts that Orange's earnings before interest, tax, depreciation and amortisation would be 2.75 times that of One2One for 2000.

On a price-per-subscriber basis, Mannesmann is paying around £5,500 compared to around £3,000 paid by Deutsche Telekom for One2One, a premium Orange says reflects the higher spending of its customers.

"Yes, the price is high," Mr Esser conceded, "but you should never compare apples and oranges."

And he said a full price had to be paid to win Orange's shareholders' support for a deal which analysts believe is one of the last entry possibilities into the booming British industry.

The German group - which has transformed itself into one of Europe's most dynamic telecoms companies - has clinched crucial agreement for its bid from Orange's 44.8 per cent controlling shareholder Hong Kong conglomerate Hutchison Whampoa, which is taking a 10.2 per cent stake in the enlarged company. This agreement is binding even in the event of a competing or higher offer by a third party, and Hutchison has agreed to hold 42.7 million of the 51.8 million shares it will own in the new Mannesmann group for at least 18 months.

The deal creates a pan-European telecoms operator with key operations in Britain, Germany and Italy - among the continent's biggest growth markets. But Mannesmann's earnings before interest, tax, depreciation and amortisation will be diluted in both 2000 and 2001.

"The enlarged group will include three of Europe's five leading wirefree brands - Orange, D2 (in Germany) and Omnitel (in Italy). It will be well positioned in data and Internet services, the most valuable growing markets in telecoms," Mr Esser said.

Mannesmann said it had secured a €12 billion bridging loan to help fund the deal. It also plans an equity financing to raise up to €4 billion in the first half of 2000.

Orange, the third-biggest and youngest of Britain's four mobile phone companies, has more than 3.5 million customers and a 17 per cent share of the British cellphone market. If Mannesmann succeeds in its bid, it will have more than 20 million mobile phone subscribers in Europe, more than Telecom Italia Mobile (18 million) and Vodafone Air Touch (12.7 million).