Vodafone CEO faces Mannesmann merger fraud probe
German authorities not happy
Chris Gent, CEO of Vodafone, and a number of high-ranking executives in Vodafone and Mannesmann (the German company bought out by Voadfone in November 1999) are under investigation by the German authorities for fraud.
It is alleged that the huge bonuses paid to the execs on completion of the merger were part of a sweetener to let it go through (Dusseldorf's public prosecutor has already used the word 'bribes'). The facts of the situation would certainly lend credence to that theory.
Vodafone subtly leaked its plans to buy Mannesmann to the press in July 1999 (all the analysts, of course, claimed it was their nous). Then it made a formal £64 billion offer on 15 November. Mannesmann's value at the time was £59 billion.
Mannesmann, and in particular its CEO, Klaus Esser, was extremely dismissive of the bid. It described it as "wholly inadequate" and "extremely unattractive". Esser went rushing off to the press exclaiming that the merger would go ahead over his dead body. He also used some dirty tricks, including putting pressure on Goldman Sachs not to advise Vodafone. Later, a German judge said his and his company's conduct was "totally disgraceful and unacceptable".
Vodafone wasn't to be put off though and a made a huge £79 billion offer four days later. It created a massive stink. Even the German chancellor Gerhard Schroeder got involved, saying a takeover would destroy the "culture" of Mannesmann. This sparked UK prime minister Tony Blair to warn Schroeder off (though he didn't mention BMW's purchase of Rover, ahem).
Then there was lots of patriotic talk about how the German stock exchange had never allowed a hostile bid to go ahead and why should it start now, and so on and so forth.
And then - would you believe it? - Esser decides that actually everything is all right, Vodafone is not so bad and he didn't really mind have the company that he had transformed from nothing to a powerful player being eaten up in front of his eyes and all his powers removed.
The suggestion is that the £30 million given to Esser as a redundancy payment and the £19 million paid out to other Mannesmann execs had something to do with this sudden change of mind. And then there was the £10 million bonus that Gent received for getting the deal through.
Apart from Esser and Gent, the other two key players under investigation are Klaus Zwickel, head of the powerful IG Metall trade union and fromer member of Mannesmann's supervisory board, and Josef Ackermann, also a member of the supervisory board and now a top bod at Deutsche Bank.
Vodafone denies any claims of illegal behaviour, saying it was obliged to pay out bonuses that had already been agreed upon by the Mannesmann board and it had simply inherited.
Gent came under fire just this July for paying himself just under £1 million in bonuses on top of his £7 million salary. ®
Vodafone tipped to buy Mannesmann (July 1999)
Mannesmann rejects Vodafone's £64bn bid (November 1999)
Confusion reigns over Mannesmann bid (November 1999)
Chris Gent's generosity continues - for himself (July 2001)