Front Page Titles (by Subject) MANNESMANN'S COURTESY COULD PROVE RARE * - Political Economy, Concisely
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MANNESMANN’S COURTESY COULD PROVE RARE * - Anthony de Jasay, Political Economy, Concisely 
Political Economy, Concisely: Essays on Policy that does not work and Markets that do. Edited and with an Introduction by Hartmut Kliemt (Indianapolis: Liberty Fund, 2009).
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MANNESMANN’S COURTESY COULD PROVE RARE*
Now that the Mannesmann-Vodafone contest is behind us it might be a good time to pause and consider what just took place and what the implications are for Europe. Many see in the outcome a watershed event. Mannesmann, a large German engineering concern that has grown into a spectacularly successful multinational telephone business, was after all the indisputable champion among continental Europe’s giant corporations. By conventional wisdom, it should have been invulnerable to takeover attempts. Yet late last week, its management ended a three-month battle for control with Vodafone Airtouch by extracting terms beyond which Vodafone could not have gone.
According to the deal, the Mannesmann owners will walk away with 49.5 percent of the future Vodafone-Mannesmann. In exchange, the Mannesmann board renounced all recourse to the abundance of obstructive tactics it could have used, and recommended the Vodafone offer to its shareholders.
The first point I’d like to raise deals with language. The vocabulary used in the media was about what we could have expected. Throughout the long contest, journalists routinely spoke in terms of Mannesmann “falling victim to a hostile bid” if its board accepted any alternative that did not preserve Mannesmann as an independent corporate entity. It seems extraordinary that this language again passed unchallenged. But then it always does whenever a bidder addresses a corporation’s shareholders without first securing, by golden handshakes and reassuring undertakings, the consent of its management and sometimes of the labor unions and the government as well.
HOSTILE TO WHOM?
In what way or to whom were this and similar bids hostile? Who exactly was the victim? Some of the managers, possibly, and some of the employees, if the transfer of the company’s control is to improve efficiency and increase total wealth rather than merely pander to the vanity and megalomania of the bidder. But the idea that managers own their offices and employees own their jobs, to such effect that they are “victims” of “hostile” acts if they lose them, is surely strange.
Stranger still is the fact that so few in the media and among the broad public find it strange. Jobs are matters of contract; if they are to be protected, the protection must be embedded in the terms of the contract, not added later by lobbying and the propagation of spurious claims of rights of tenure. A corporation is owned by its owners. An offer for their shares is no more hostile to them than is the offer for any other piece of property to its rightful proprietor. What is indeed hostile is any claim to the contrary.
Perhaps the negotiated acceptance of the Vodafone offer is a first portent that things are no longer seen in Europe in the confused fashion that confused language promotes. Linguistic obfuscation on the part of mostly leftist journalists may have (let’s hope) reached its limit. Perhaps owners, even in continental Europe, and even of large prestigious corporations, will now be allowed to own.
But this is far from certain. The second-largest “hostile” bid after Vodafone’s was last year’s three-way fight for supremacy in French banking. The managers of Société Générale and Paribas wished to merge the two banks; Banque National de Paris, or BNP, the same size as either of the others, tried to impose a merger of all three under its leadership. The contest took several months and provided classic examples of how corporate boards and governments now pay lip service to free capital markets, while doing their best to thwart them.
The management at the two defending banks, Société Générale and Paribas, showed pained astonishment and anger at having BNP appeal over their heads to the shareholders. They tried to have BNP’s offer set aside, an action they knew was lost in advance but one that it took the courts months to deal with. The French government, for its part, set in motion one of the civilized world’s most involved and opaque regulatory machineries to ensure that they would end up with the kind of three-way merger it wanted.
Paris sought to create one of the world’s biggest banks, an idea that had irresistible appeal to the national ambitions of the French bureaucrats. The highest mandarins of the Ministry of Finance did little to conceal their determination to see BNP through to victory. They even tried to force the governor of the Banque de France, Jean-Claude Trichet, to browbeat the protagonists into agreement on the ground that a contested takeover threatened the stability of the nation’s banking system.
The objective was to forestall shareholder self-determination by securing a deal among the respective managers. They were to deliver “their” banks to a tripartite superholding. The French government therefore fiercely warned off Banco Santander Central Hispano from supporting SocGen by buying its shares in the market.
When all else failed to deliver the solution that national grandeur demanded, the government froze the whole process, expecting the “victims” to get the message and comply. In response to warnings that investors were getting disgusted with his high-handed treatment, the then finance minister Dominique Strauss-Kahn (who, facing corruption charges, has since resigned) confidently and grandiosely declared: “The French state is not quoted on the stock exchange!”
In the end, bewildered shareholders sold Paribas to BNP while Société Générale stayed independent. There is of course no telling what the outcome would have been had managers and government not tried to usurp the owners’ role. It is unlikely, though, that the result would have been exactly the same.
The novelty of the Mannesmann case was that right from the outset the chief executive, Klaus Esser, said he would fight by Marquess of Queensberry rules, and throughout he did what he said he would do. He declined to use the tempting opportunities he had to restrict shareholder sovereignty. He could no doubt have provoked government interference, nationalist attacks in the media against the foreign invader, and labor-union agitation. He also had strong weapons in Mannesmann’s by-laws.
Above all else, Mr. Esser could have invoked an obscure provision of German company law which offered every chance of leaving an un-completed Vodafone-Mannesmann merger indefinitely mired down in the courts. This provision, untested and hard to interpret, fitted this particular case like a glove. It would have been ideal both to keep the lawyers of the two parties profitably employed for many years and to keep Mannesmann independent even if a majority of its shareholders had wanted it to merge. In the end, falling in with part of his supervisory board, Mr. Esser made peace and settled with Vodafone, getting a rather better price for his shareholders than the original, “hostile” offer. At no time did he try to stop them disposing of their property the way they saw fit.
Until the next test case and the next after that, however, we can only guess whether he could have done so if he had been prepared to use foul means as well as fair. Time will tell, because there are plenty of European managers only too willing to use legal subterfuges, appeals to the national interest, and local welfare to put across the notion that owners have no more say, and perhaps rather less, than anybody else connected with the business. It is too soon to feel confident, but perhaps one could start hoping that the Mannesmann case does indeed mark a turning in this road.
French and Russian Tragicomedies
[* ]First published in the Wall Street Journal Europe, February 10, 2000. Reprinted by permission.