FINA 7397 – Mergers & Acquisition
August 14, 2010
1. What was the strategic and economic rationale for Mannesmann’s acquisition of Orange? Did Mannesmann overpay for Orange? (Detailed analysis of why or why not)
Looking at Mannesmann’s acquisition of Orange and the timing of it, it is clear that Mannesmann hopes that the acquisition would block a takeover by Vodafone. Mannesmann is losing the industry consolidation race and is about to be gobbled up. Additionally, Orange is a great strategic fit for Mannesmann giving them market share and great growth in the UK market.
With a combined Mannesmann-Orange, Vodafone will likely not get anti-trust approval from the UK government to ...view middle of the document...
2. As someone representing the Vodafone shareholders, should I support the proposed transaction? Why or why not.
Based upon the valuation of Mannesmann, I would support the proposed transaction (see below). The value of Mannesmann’s Telecom business is 71,387¬ pounds based upon DCF. Mannesmann’s industrial businesses are valued at 7,405 pounds based up EBITDA of 903 Pounds and multiple of 8.2. Orange is valued at 17,730 pounds based upon an EBITDA of 598 Pounds and a 29.6 multiple. This gives a total enterprise value of £96.5 Billion. Net Debt is £19, making the equity value at £80.3. Translated to Euros, this is €128 Billion of intrinsic equity value of the existing businesses.
Furthermore, when you take into consideration the synergies, there is a present value of €40.9 Billion that could be realized on top of the €128 Billion, making the potential realized value to Vodafone € 169,392.89. With an offer price of €138 Billion, it seems like a great deal for Vodafone shareholders.
The acquisition of Mannesmann is essential for Vodafone to become the global leader in the telecommunication industry. With this one acquisition, Vodafone will become the largest telecom with operations in 25 countries with 42 million equity subscribers.
Value of Mannesmann 2000 2001 2002 2003 2004 2005 2006
FCF Mannesmann Telecom £96 £474 £1,041 £1,645 £2,322 £3,228
Term Value £93,261
Free Cash Flow £96 £474 £1,041 £1,645 £2,322 £96,489
WACC 7.60%
TV Growth Rate 4%
NPV of Mannesmann £71,386.90
EBITDA Multiple
Value of Orange £17,730.00 598 29.6
Value of Industrials £7,404.60 903 8.2
Total Mannesman-Orange EV £96,521.50
Net Debt -£16,250.00
Intrinsic Value of Equity Mannesmann-Orange (Pounds) £80,271.50
Exchange Rate 1.60
Intrinsic Value of Equity Mannesmann-Orange (Euro) € 128,434.40
Synergies between Vodafone & Mannesmann 2000 2001 2002 2003 2004 2005 2006
Revenue 0 50 153 469 656 977 1,221
Rev Costs 0 (40) (107) (281) (328) (488) (610)
Cost Synergies 0 80 200 500 656 732 879
Savings in Capital 0 ...