German company Mannesmann is to step up its defence against the hostile bid from Vodafone AirTouch, as its chairman Klaus Esser briefs shareholders in London on Monday.

German mobile phone giant Mannesmann has rejected a $125bn takeover bid by Britain's Vodafone Airtouch.

Members of Mannesmann's supervisory board unanimously backed chairman Klaus Esser's decision to reject the offer, a company spokeswoman said.

The decision had been expected by Vodafone.

Chairman of the supervisory board, Joachim Funk, said: "This offer is not acceptable in either form or substance and it fails to meet the value test.

"In addition, the offer fails to reflect the value potential of Mannesmann. It is not in the interest of shareholders, employees or the company as a whole and therefore should be rejected."

Door remains open

A Vodafone spokesman said the British company still intended to go ahead with a formal offer to Mannesmann shareholders next month.

"We have said that our door remains open if Mannesmann's management wishes to talk," he said. "That's still the case and it will remain so.

"But if they don't want to, we will put the logic of our argument to their shareholders."

The rejection by the company's supervisory board sets the stage for the largest hostile corporate takeover attempt in corporate history.

Vodafone AirTouch chief executive Chris Gent has said that, after talks with about a quarter of Mannesmann shareholders, it had become clear that a great many were prepared to swap shares in Mannesmann for Vodafone.

Mannesmann Chairman Klaus Esser has said he believes the company's strategy of integrating fixed-line and mobile operations is superior to Vodafone's sole focus on wireless communications.

EU concern

European Commission officials have warned that the Vodafone AirTouch bid for Mannesmann may be blocked if it is not in the interests of European consumers.

"Our competition authorities will not allow markets to centralise in ways that do not benefit consumers," European commissioner for enterprise Erkki Liikanen said.

Separately, competition commissioner Mario Monti said the deal required close analysis and highlighted the need for pan-European takeover rules.

Mannesmann has warned that net profits this year are likely to be hit by higher taxes and the cost of buying Orange.

So far this year, a strong rise in telecoms earnings has buoyed profits.

Pre-tax profit rose to 1.113bn euros from 1.078bn euro in the previous period. Telecoms alone accounted for 1.061bn euro of this.

The company expects earnings in its telecoms division to grow by more than 60% without the Orange acquisition.

Nearly all (96%) of Mannesmann's earnings in telecoms can be attributed to strong growth in mobile networks.

Mannesmann strength in mobiles in Italy, Germany and France is one of the reasons it is attractive to Vodafone AirTouch, which wants to create a European mobiles giant.