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Sunday, 30 January, 2000, 15:20 GMT
Vodafone blow against Mannesmann

UK phone company Vodafone Airtouch has found a surprise ally in its take-over battle for telecoms giant Mannesmann by linking up with French conglomerate Vivendi.

Mobile merger battle
The two firms plan to create a European internet portal and pool their resources to build a continent-wide fixed-line phone network.

It is an ideal alliance between two partners with highly complementary profiles and it comes at just the right moment.
Jean Marie Messier
Vivendi chairman
The move - announced at a hastily arranged news conference on Sunday afternoon - could persuade investors that Vodafone has the competitive edge over German rival Mannesmann.

Vivendi called the link-up with Vodafone was a "major strategic accord".

However, all the details of the new partnership are still to be negotiated, and if Vodafone fails to gain control of Mannesmann the deal is off.

During recent weeks, both Vodafone and Mannesmann have engaged in a flurry of deals, alliances and announcements to boost their position in the take-over battle.

Shareholders have to take or leave the Vodafone offer by 7 February.

White Knight no more

Chris Gent and Jean Marie Messier gang up against Mannesmann
Until Saturday there had been loud rumours in the French and German media that Vivendi could act as a "white knight" for Mannesmann, rescuing the firm from Vodafone's unwanted attention.

Vivendi and Mannesmann are partners in French mobile phone company Cegetel.

Any such hopes by the Mannesmann management have now been dashed.

At the same time, the venture will bolster Vodafone's internet strategy. In its defence, Mannesmann had repeatedly derided the lack of its rival's internet presence.

The German firm is one of Europe's largest internet service providers, combining mobile and land-line telephony to deliver online services.

Vodafone is only providing mobile phone services, and announced its internet strategy only earlier this month.

'Multi-access internet portal'

Vivendi and Vodafone say they will own 50% each of the internet venture, which was described as a "branded multi-access portal" in Europe.

[We will] develop one of Europe's leading Internet businesses.
Chris Gent
Vodafone chief executive
The two companies have given themselves until 30 June to negotiate the details of the project.

The joint venture, though, is set to become an 80% investor in an early stage "wireless internet" fund to be established together with SoftBank, which will hold the remaining 20%.

Softbank of Japan is a leading investor in internet companies around the world, and has struck an alliance Rupert Murdoch's News Corporation.

Despite the vague terms of the deal with Vivendi, it should give Vodafone's online activities more credibility.

Vodafone boss Chris Gent said the alliance would position both firms to develop one of Europe's leading internet businesses.

In return Vodafone has promised to sell Vivendi the 7.5% stake in mobile phone operator Cegetel, currently owned by Mannesmann. Again, this depends on the success of the takeover.

The third plank in the joint strategy is an agreement to "examine options" for a possible alliance in fixed line telecoms.

This could lead to the creation of a pan-European phone network by pooling businesses owned by Vivendi and those that Vodafone hopes to acquire through Mannesmann.

Mannesmann's pre-emptive strike

There are indications that Mannesmann chief executive Klaus Esser was aware of what was about to hit him.

On Friday he announced what must now be seen as a countermove, saying that Mannesmann wanted to take a stake in online service AOL Europe.

He also gave details of an internet and telephone banking operation to be set up in co-operation with Deutsche Bank.

Vivendi - from water to media and telecoms

For French conglomerate Vivendi, the link-up with Vodafone is yet another move in a dramatic turnaround.

Once one of France's largest water utilities and back then known as Compagnie Generale des Eaux, the firm has not only turned itself into the world's largest water company, but shifted much of its business into high-growth high-tech sectors.

The firm has stakes in mobile phone company Cegetel, internet provider AOL France and in media firms Canal+ and Rupert Murdoch's BSkyB.

Vivendi is also active in the construction industry, produces energy through subsidiaries Dalkia and Sithe Energies, runs rail and haulage firms and owns bits of publishing group Havas.

Mannesmann's bet on telecoms

The strategic shift into high-growth sectors mirrors that of Mannesmann.

Ten years ago the German company was best known for producing seamless steel tubes, a process invented by the firm's founders more than 100 years ago.

But in 1990 Mannesmann moved aggressively into the telecoms sector, quickly becoming one of Europe's largest provider of telephone and internet services.

Vodafone's mobile ambitions

Vodafone Airtouch is the result of a merger between mobile phone operators Vodafone (UK) and Airtouch (US).

The most valuable company on the London Stock Exchange, Vodafone has so far focused on mobile telephones, with numerous holdings in mobile phone operators around the world.

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