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Business

Trying Germany's Business Elite

A verdict is expected this week in Germany's most-watched business trial: Top executives, including the head of Deutsche Bank, are accused of approving astronomical severance packages. A review of the Mannesmann trial.

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Which way will it go?

Düsseldorf. District Court. Room L111. That's where Germany's business elite has been on trial since Jan. 21. Among the defendants are Josef Ackermann (photo), Deutsche Bank's chief executive officer, Klaus Esser, the former CEO of defunct cell phone giant Mannesmann and Klaus Zwickel (photo), who previously headed the world's largest trade union, IG Metall.

Josef Ackermann und Klaus Zwickel

Klaus Zwickel and Josef Ackermann

All three are accused of approving millions of euros in severance packages for Mannesmann's top executives after British competitor Vodafone took over the company.

It all started out with a bitter fight as Mannesmann initially vehemently resisted the proposed takeover.

"Don't do anything," Esser had told his shareholders in the fall of 1999 and asked them in full-page newspaper ads to turn down Vodafone's hostile takeover bid. "Do what you've always done: Keep your stocks."

Mannesmann puts up a fight

It seemed as if the Mannesmann CEO was planning to prevent Vodafone from swallowing the German company. After all, Mannesmann had transformed from the world's largest producer of steel tubes to Europe's second largest cell phone company just a few years earlier. In Germany, Mannesmann had even become the No. 1 with its D2 network that held 40 percent of the market.

Mannesmann

Mannesmann now reads Vodafone

But company executives didn't just appeal to their shareholder's intelligence -- Mannesmann would be worth more without Vodafone -- but also their feelings: One poster used in the campaign pictured a baby afraid of its hostile mother. The caption included the oft-repeated Mannesmann mantra of the time: "Keep your stocks."

Esser's rival, Vodafone CEO Chris Gent, countered with similarly graphic ads, saying that a takeover would ensure the erstwhile successful cooperation between the two companies.

"I want to ensure all of Mannesmann's mangement and employees that their prospects would be enhanced by the merger," Gent said at the time.

Vodafone feels threatened

Orange entläßt Mitarbeiter

In his view, not the takeover bid but Esser's actions had brought an end to the previous cooperation: The latter had acquired Vodafone rival Orange in Oct. 1999 -- a move Vodafone saw as a direct attack on its home turf in Britain.

"We were disappointed that our partnership with Mannesmann was put into question when Mannesmann announced an offer for Orange without talking to us," Gent said.

One month later, Gent fought back by making a hostile takeover bid. He offered Mannesmann shareholders 53.7 Vodafone shares for each of their Mannesmann stocks. It was a novel situation, as hostile takeovers had been virtually unknown and looked down on in Germany until that time.

Gent benefited from his takeover of US company AirTouch at the beginning of 1999 -- AirTouch had owned Mannesmann shares. That's why the Vodafone boss already had 35 percent of Mannesmann stock and only had to convince shareholders to hand over an additional 15 percent to hold a majority.

Esser's attacks didn't fit into Gent's plan, however -- at least in the beginning. When Vodafone raised the offer from €100 billion ($123 billion) to €180 billion, Mannesmann managers finally gave in as too many shareholders had switched sides.

Giving in

After fighting for months, Gent and Esser came to an agreement during a night-time meeting on Feb. 3, 2000. On the next day, they announced the largest merger in the history of business to the press.

Mannesmann Übernahme Chris Gent und Klaus Esser Vodafone

Former rivals Chris Gent (left) and Klaus Esser were all smiles when they announced the takeover

"I'm glad that we have come to an agreement with Vodafone AirTouch to establish one of Vodafone AirTouch's European centers here in Düsseldorf," Esser said.

What people didn't know at the time was that Mannesmann executives had been promised a generous "golden parachute" to close the deal. Altogether, they received €56 million in severance packages -- €30 million of which were set aside for Esser.

But he was cheeky enough to express his concern of his own job security at a press conference.

Die Vodafone-Zentrale am Mannesmannufer in Düsseldorf am 17.02.2003.

A street sign is all that's left of Mannesmann

"There's no risks for jobs that is worth mentioning," he said. "There is a risk for the job of Mannesmann CEO, as you know. But we are dealing with 135,000 people working here. If you look at the company as a whole, there is no risk."

The severance packages soon began to interest prosecutors, who argue that shareholders were harmed because of them as company money had been misappropriated. A first investigation didn't lead to a trial, but prosecutors stuck with the case. Apart from Esser, members of the board of trustees involved in approving the severance packages now stand accused of embezzling funds in the current trial. A verdict is expected for Thursday.

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