Vodafone AirTouch, Britain's largest telecommunications group, is planning to put a £100 billion (€156.4 billion) takeover proposal to Mannesmann, the German telecommunications and engineering group.
It hopes the Dusseldorf-based company will agree to the offer, which could come in the next few days. But if Mannesmann rejects Vodafone's friendly approach, the British group is prepared to make a hostile bid.
The move has been triggered by Mannesmann's purchase of British mobile phone operator Orange, which threatens to thwart Vodafone's ambitions to be the dominant European player.
Vodafone intends to make an allshare offer, valuing Mannesmann at about €200 a share, compared with yesterday's close of €185.3.
Given that the German group's share capital is being expanded as a result of its impending acquisition of Orange, the total value of the bid would be about £100 billion.
If Vodafone's approach does turn hostile, it would be the world's largest ever unsolicited bid. If it succeeded, it would also create the world's largest telecoms group by market capitalisation.
Mannesmann's supervisory board is scheduled to meet next Friday to approve a plan for demerging the group's engineering business from its fast-growing telecoms operations. Vodafone hopes the supervisory board will see the attractions of its offer.
In addition to setting out the value it would pay for Mannesmann, Vodafone will offer Mr Klaus Esser, the company's chairman, a senior executive role in the combined company, possibly in charge of its European operations. It will also try to win over Mr Esser by arguing that the two companies share a strategic vision in wanting to create a platform for introducing Internet services via mobile phones.
Vodafone plans to dispose of Orange if it acquires Mannesmann. One option would be to sell the group to another international telecoms operator, such as France Telecom or Japan's DoCoMo. An alternative would be to distribute shares in Orange directly to the shareholders of the combined Vodafone/Mannesmann.
Mannesmann is thought unlikely to respond positively to Vodafone's proposal. The company is expected to argue that it would have little to gain from a combination with Vodafone because its networks are more advanced than its rival's.
Vodafone AirTouch is under no illusions about the difficulty of launching a hostile bid in Germany, where such moves are rare. A shareholder needs more than 75 per cent of voting shares under German law to exercise management control of a company.
Without it, it would be unable to remove members of the supervisory board, which is invariably dominated by representatives approved by the workforce. In the past, such members have resisted takeovers because they would have led to job cuts.
Vodafone is understood to have added Warburg Dillon Read to its group of advisers, while Mannesmann has added Deutsche Bank.
If the offer becomes hostile, advisers to Mannesmann may recommend it takes action against Goldman Sachs. As adviser to both Orange and Vodafone AirTouch, it is perceived by rivals as ignoring a conflict of interest issue.
