The Trouble With German Nationalism

If British telecom giant Vodafone succeeds in its attempted hostile takeover of German telecom giant Mannesmann, the deal will be, by some measures, the biggest deal in history (non-inflation, non-bull-market-adjusted, that is). And it will also be a crucial step in turning Europe into what it’s supposedly well on its way to becoming: a unified economic region.

Great Britain has refused to become part of the euro currency zone, so there’s something ironic about a British company serving as the avatar of globalization, European-style. Nonetheless, it is as precisely that kind of avatar that Mannesmann’s management and workers are treating Vodafone. Even allowing for the fact that companies trying to resist hostile takeovers will say and do almost anything to make their would-be acquirers look bad, the German reaction to the Vodafone offer has been striking for its vehemence and the nakedness of its nationalism. Political leaders, union leaders, and corporate leaders alike have all publicly attacked the deal as effectively British imperialism.

This is not, on some level, exactly surprising. Until this year, after all, nearly all European countries had regulations requiring pension funds to invest most of their assets in companies based in their own countries. And Olivetti’s successful takeover of Telecom Italia this year was made possible in part by the fact that Telecom Italia’s attempted defense against the takeover involved a prospective merger with Deutsche Telekom, a merger that would have been unacceptable to the Italian government. In any case, it’s not as if the United States has no experience with this sort of thing, as evidenced by the hysteria occasioned by Japanese companies’ acquisitions of properties like Rockefeller Center and Columbia Pictures in the late 1980s and early 1990s. (Of course, since only huge inflows of foreign capital now allow us to fund our current-accounts deficit, we should be thankful, not angry, that foreign investors want to put their money here.)

Still, the fight over Mannesmann seems especially ironic. In the first place, German companies have been among the most aggressive of global acquirers in recent years, both in the United States and Europe. Daimler has bought Chrysler, Bertelsmann has acquired a host of media and publishing properties, Deutsche Bank bought Bankers Trust, and the list goes on. That’s why, for all the bluster, you probably won’t see the German government actually taking any political action to block the deal. And it’s also why Germans should get over the knee-jerk reaction that any foreign takeover necessarily means terrible things for a German company.

The other factor that should be at play here, but doesn’t seem to be, is the recognition that foreign competition, whether in the direct form of competition for consumers or the more indirect form of competition for corporate control, is a very good thing, at least if we can take any lessons from the American experience. Most of those Japanese acquisitions were complete bombs, but then most acquisitions fail. The pressure created by those acquisitions, though, was a good thing (as, in retrospect, the pressure created by the corporate raiders of the 1980s was).

Mannesmann is not exactly a fat and happy corporation run by sleepy managers. It has turned in a strong performance this decade. But when Vodafone offers 240 euros a share for a stock that had been trading at 160 euros a share and Mannesmann managers say that the offer is an insult, it makes you wonder whether those managers really understand what shareholder value means. And it also makes you think that they may be looking after their own interests more than the company’s. The impulse to rally to the flag may be understandable in the face of an offer like Vodafone’s. But from an economic perspective, it’s an impulse that should be resisted.