Robert H. Smith School of Business | Valuation | Case #4 Vodafone AirTouch’s Bid for Mannesmann | |

Executive summary

Vodafone AirTouch, one of the world’s leading international mobile telecommunications companies, was considering launching a formal hostile bid for Mannesmann, a German telecommunications company which is also among the largest telecommunications companies in Europe. If this come true, it will become the largest hostile takeover in the world.
But now we are facing one of the biggest problems during this process---valuation of Mannesmann. After our discussion, we decide to use the DCF method with the information provided in Exhibit 7 and some reasonable assumptions we made about Mannesmann’s future …show more content…

We suggest the fair value of Orange should be €22.11 billion based on the following approach: a) One2One Firm Value = Transaction value = €14 billion b) One2One’s EV0EBITDA0=EVRev.×EBITDA margin=14 bn1.14×14%=87.72 c) Orange’s Firm Value =EV0EBITDA0×Rev.Orange×EBITDA marginOrange=22.11
Using One2One as the comparable company is due to the similarity of the two companies in geometric market & market share (18% and 16.6% respectively), Equity POPS, and transaction date. EV/EBITDA is independent with capital structure; therefore we do not have to adjust our valuation to debt/equity ratios. Besides, the fact that Mannesmann’s share price dropped 8% within 4 days after the announcement of the Orange acquisition indicates the market believes €31 billion is not wise.
Based on our analysis above, we conclude that Mannesmann overpaid Orange.

3. Vodafone’s Acquisition of Mannesmann
In order to measure whether or not we will accept the current offer as a shareholder in Mannesmann or Vodafone, we have to estimate Mannesmann’s equity value. Exhibit 7 in the cases provided us financial information about Mannesmann, which could be used to estimate future free cash flow. Then we could value Mannesmann with DCF method. First of all, we have to make enough reasonable assumptions about future situation.
1) From Goldman Sachs’ report in Exhibit 11, we could find estimated WACC is 7.6% and long-term growth rate is 4%.
2) EBITDA growth rate is assume to be