Question 1: What was the strategic and economic rationale for Mannesmann’s acquisition of Orange? Did Mannesmann overpay for Orange?
There are several reasons for Mannesmann to takeover Orange. First of all the acquisition allowed to set foot on the British telecommunication market. Orange had a market share of 18% in the UK market, while Mannesmann on the other hand was not a real player in the region. You could therefore conclude geographical compatibility was an element driving the takeover. Another reason is the consolidation wave that was happening at the time. This lead to big players who were able reduce their costs (purchasing economies, economies of scale e.g. network efficiency, etc.) and to attract the best global content providers (source: case). Moreover solely the big players have enough capital to successfully invest in third generation technology (BBC Online 1999). If Mannesmann wanted to remain an important player in this new telecommunications environment it had no choice but to grow rapidly. In view of the last remark a more strategic issue becomes clear. At that time the most important strategy of Mannesmann was probably: “eat or be eaten”. In order to remain independent Mannesmann could acquire Orange, thereby making it very difficult to be taken over (rumours of the takeover by Vodafone). In case there would still be an interested buyer than the acquiring company would be forced to pay a very high price.
Mannesmann bought Orange and paid a premium of around 18 percent on the share value of Orange. Not long before the offer of Mannesmann for Orange the enterprise was looking to place a bid on One2One as an entry ticket to the UK-market. At that time the enterprise decided not to continue the bid, because they claimed it would be to exp ...