Vodafone's hostile takeover bid for Mannesmann highlights debate on the German capitalist model

In November 1999, a hostile takeover bid from the British mobile phone group Vodafone AirTouch for Mannesmann led to a broad debate on the future of the German model of capitalism. German trade unions and the Mannesmann works councils strongly rejected Vodafone's bid, in order to defend the German culture of corporate governance which is based on strong employee involvement and co-determination. With the employees' viewpoint supported by almost all major political parties in Germany, Vodafone reacted to the criticism by saying that, after a takeover of Mannesmann, it would fully accept the German system of industrial relations and corporate governance.

On 13 November 1999, the UK-based Vodafone AirTouch, the world's largest mobile phone group, announced a takeover bid for the German telecommunications and engineering group Mannesmann AG, on the basis of an exchange of shares between the two corporations. The Mannesmann executive board, however, immediately rejected the acquisition proposal, calling it an "inferior offer" which is "extremely unattractive for Mannesmann shareholders". According to Mannesmann management, a merger with Vodafone is not strategically reasonable since both companies have very different structures and economic growth prospects. While Vodafone concentrates its business mainly on mobile phones, Mannesmann is much more diversified, with four main business divisions operating in engineering, automotive, telecommunications and tubes - see table below.

* The total number of employees in 1998 was 116,247, including other companies and Mannesmann administrative headquarters.

Source: Mannesmann AG annual report 1998.

On 19 November, the Mannesmann supervisory board confirmed the management's position and officially rejected the Vodafone offer. At the same time, however, the British telecommunications group came forward with a new improved proposal, which appeals directly to the Mannesmann shareholders to exchange their shares in the ratio of 53.7 Vodafone AirTouch shares for one Mannesmann share. Since the Mannesmann management and supervisory board continued to argue against the takeover, the Vodafone offer represented the world's largest-ever unsolicited bid.

Reactions of Mannesmann employees representatives

After the public announcement of the takeover plans, representatives from the IG Metall metalworker's union and the Mannesmann group works council immediately rejected Vodafone's bid as unacceptable. In an interview, the president of the Mannesmann group works council, Jürgen Ladberg, declared that the Mannesmann workforce "would do everything to prevent a takeover". On 18 November 1999, the works council organised 10-minute token strikes in several Mannesmann companies to protest against the takeover.

On 23 November, more than 1,000 German Mannesmann works councillors held a meeting under the slogan "against hostile takeover - Mannesmann not for sale" at the company's headquarters in Düsseldorf. In a speech at the meeting, the president of IG Metall and deputy chair of the Mannesmann supervisory board, Klaus Zwickel, sharply criticised Vodafone's "brutal behaviour" as an expression of a "predator capitalism" (Raubtier-Kapitalismus) which "aims only at short-term profits for the shareholders". Mr Zwickel said that Vodafone was interested only in cutting the "best fillet" out of Mannesmann - ie its extremely profitable mobile phones division (see table above). The other Mannesmann divisions would very likely be sold again and thereby the overall Mannesmann corporation would be disintegrated. The IG Metall president announced strong resistance to this scenario, which would threatens thousands of jobs and undermine the particular co-determination culture at Mannesmann (DE9903101F). In order to prevent such hostile takeovers, Mr. Zwickel demanded European regulation - for example, a European company law which is able to safeguard employees' co-determination rights.

At the end of the meeting, a so-called "Declaration of Düsseldorf" was adopted, in which the Mannesmann works councillors expressed their united resistance to a takeover by Vodafone (EIRO translation):

As elected representatives of about 75,000 employees in Germany and in the name of the secretariat of the European Works Council we declare the following: We are strongly against the previous and all possible future attempts for a hostile takeover of the Mannesmann Corporation through Vodafone AirTouch or any other bidder. We see the attempt at a hostile takeover as a flagrant disregard of our company culture which is based on a broad participation of employees and their trade unions in all major company decisions.

The Vodafone bid seriously threatens the ongoing socially acceptable restructuring of the Mannesmann corporation towards a telecommunications and technology company. It calls into question the future of the Mannesmann concept for an integrated strategy to combine mobile, fixed-line, Internet and broadband communications (...)

Such a hostile takeover would seriously threaten the future of production locations, products and working places within the whole Mannesmann corporation. Therefore we demand that:

US trade unions support Mannesmann employee representatives

On 22 November 1999, the Mannesmann employees' representatives received unexpected support from the American trade union confederation AFL-CIO, which has an influence on the company through collectively-bargained benefit funds, which control about 13% of Mannesmann shares. In a press statement, the president of AFL-CIO, John Sweeney, stated that the investment managers of the fund has been asked to oppose Vodafone's hostile bid for Mannesmann, because: "the managers of worker capital have a responsibility to invest those funds in the long-term interests of their beneficiaries. The AFL-CIO believes value is created over the long-term by partnerships among all a corporation's constituents -- workers, investors, customers, suppliers and communities. Mannesmann, and the European model of corporate governance under which it is structured, has allowed just those kinds of value-creating partnerships to flourish. Worker capital, the savings of America's working families, should support value-creating partnerships like those at Mannesmann. Only then will the global economy be able to deliver sustainable, equitable prosperity."

Political debates on Vodafone's bid

Besides the strong criticism from trade unions and works councillors at Mannesmann, Vodafone's attempted hostile takeover has also led to broad public debates in Germany and strong criticisms from German politicians. The Chancellor, Gerhard Schröder, for example, stated that a hostile takeover would "damage the corporate culture" and "underestimates the virtue of co-determination".

Other German politicians declared even more explicitly their rejection of Vodafone's "unfriendly" initiative. In his speech at the Mannesmann works councillors' meeting, the Social-Democratic prime minister of the federal state of North Rhine Westphalia, Wolfgang Clement, accused Vodafone of "playing monopoly with the Mannesmann company against the interests of the employees, the works councillors, the management and the supervisory board". The leader of the opposition Christian Democratic Union in North Rhine Westphalia, Jürgen Rüttgers, argued in the same direction when he declared that "hostile takeovers in the style of Manchester capitalism do not fit into the concept of social market economy." Finally, the German Minister of Finance, Hans Eichel, called in an interview with the Financial Times for new takeover rules in Europe, in order to "avoid a culture clash between Anglo-American capitalism and the consensual German model."

The relatively unanimous reactions of German politicians have provoked strong counter-reactions, in particular in the British press which called the German debate "nationalistic" and "hypocritical", since German companies have long been active in acquiring foreign companies. For example, Mannesmann itself has very recently taken over the British mobile phone operator Orange. The British prime minister, Tony Blair, insisted that governments ought to respect the single European market, stating in an interview that: "we live in a European market today where European companies are taking over other European companies, are taking over British companies, and vice versa."

There were also some commentators within Germany who argued against the "nationalistic" and "protectionist" nature of the German debate on the Vodafone takeover bid. For example, the general secretary of the Confederation of German Industries (Bundesvereinigung der deutschen Industrie, BDI), Ludolf-Georg von Wartenberg, said that politicians should not influence the Vodafone-Mannesmann battle but leave it to the decisions of the economic actors. Even the Mannesmann group chair, Klaus Esser, has sharply rejected all arguments which try to defend Mannesmann's autonomy in the name of "national interests". According to Mr. Esser this is "the wrong way" because the question whether or not Vodafone's takeover offer is acceptable is a pure "economic decision" in which "the shareholders have to decide which way to go." The notion of a "national question" also ignores the fact that more than 60% of the Mannesmann shares are already held by non-German shareholders.

Vodafone responds to its critics

Since the Mannesmann employees and the German public displayed strong reservations concerning the takeover bid, Vodafone started a campaign to obtain a more socially acceptable and employment-friendly image. On 24 November, the president of Vodafone, Chris Gent, inserted an "open letter to the employees of Mannesmann" into all leading German daily newspapers, saying that:

• a merger of Mannesmann and Vodafone AirTouch would not mean any additional job losses;
• the rights of the employees, trade unions and works councillors would be fully recognised. Mannesmann AG would continue to have a "co-determined" supervisory board with employee representatives;
• employment perspectives in telecommunications would be improved in favour of the Düsseldorf region;
• the traditional industry divisions of Mannesmann would become a separate stock company under the current management, as had already been decided by the Mannesmann executive and supervisory board; and
• the fixed-line division of Mannesmann telecommunications would become an independent company within the new Mannesmann-Vodafone corporation.

Commentary

The current Vodafone-Mannesmann battle is another classic example of the tense relationship between national systems of industrial relations on the one hand, and increasingly internationalised market relations on the other hand. The German system of industrial relations has always been seen as a core element of the German model of "Rhenish capitalism" which, according to the French inventor of the term, Michel Albert, is characterised by a "social market economy" in which strong social institutions provide an environment for market relations aiming at long-term oriented economic development with a balanced satisfaction of all stakeholders' interests, such as clients, employees, shareholders, towns and regions, as well as the social environment in general ("The future of continental socio-economic models", Michel Albert, MPIfG Working Paper 97/6).

During the 1990s, however, the German model of Rhenish capitalism has come under increasing pressure from a rapidly changing international political and economic environment. There is an ongoing debate among business people and economists as to whether or not core elements of German industrial relations, such as co-determination or branch-level collective bargaining, correspond with the constraints of a globally deregulated market. Indeed, in the 1990s Germany has already seen some significant changes towards less formalisation and more flexibilisation and decentralisation of industrial relations.

Against this background, the current German debate on the Vodafone-Mannesmann battle is ambiguous. On the one hand, this debate is for many reasons hypercritical: first, it reproduces to a certain extent a kind of myth of "Rhenish capitalism" and ignores the changes in German industrial relations during the 1990s; second, it overemphasises the consensus aspect of German industrial relations and disregards the fact that mergers and acquisitions in Germany have often been accompanied by strong workplace conflicts; and third, it criticises the behaviour of a British company which is a not so much different from the behaviour of German companies abroad.

On the other hand, the current debate on the Vodafone-Mannesmann battle and Rhenish capitalism might also be an expression of the fact that employees are becoming less willing to follow the simple neo-liberal doctrine which says that politics should keep out of economic decisions. On the contrary, there should be no doubt that employees have the right to defend their jobs and participation rights, which often fall by the wayside as a result of mergers and acquisitions. Therefore, the Vodafone-Mannesmann battle could also be seen as an opportunity to relaunch a broader debate on a social dimension to international economic relations, at least at European level. (Thorsten Schulten, Institute for Economic and Social Research (WSI))