Hedge funds and Private Equity - PES

would have unlocked hidden reserves of 800 to 1 000 million euros, providing an opportunity to
pay special dividends or to raise the leverage ratio by means of new borrowing.
TPG was firmly resolved to pay out several hundred million euros to shareholders in the form of
special dividends. The dividends have yet to be paid, perhaps because TPG is marking time in
the face of the wide publicity given to its aggressive recapitalization plans. Thorsten Grenz, chief
executive of Mobilcom, wanted nothing to do with this windfall and resigned his post.
2.3 Effects on job creation, investments in training
and education of labour force, investments in innovation
In the merger agreement between Mobilcom and Freenet it was laid down that there were to
be no merger-related job cuts. This arrangement would probably be respected in the initial stages
if Mobilcom and Freenet actually merged. Nothing is known of any other effects on the workforce.
2.4 Management policies and shareholder activism: stock option
programs, effects on board and CEO´s, management fees,
employee information
In July 2005 a merger agreement was concluded between Mobilcom and Freenet and ratified
by a general meeting. Numerous shareholders brought legal actions in a bid to stop the merger.
The opponents of the merger stated that the special dividends on which TPG was particularly
insistent were the main bone of contention. They wanted a contractual guarantee that special
dividends could not be paid before 2010. They doubted TPG’s declarations of its intent to foster
the growth of Mobilcom. Eckhard Spoerr, head of Mobilcom, offered a binding embargo on
special dividends for the period from 2006 to 2008, but only if the payment of such dividends
would prevent acquisitions.
The legal disputes over Mobilcom are obstructing all the major activities of the mobile telecommunications
company and its ISP subsidiary. Major acquisitions are rendered impossible, and all
for want of access to the pooled finances of the two companies – this in 2006, at a time when
Mobilcom has a high liquidity ratio. Due to the judicial problems Mobilcom has lost the strategic
scope of one year. That’s why analysts and shareholders ask themselves the question, which
advantage the fusion of Freenet and Mobilcom will bring in the face of current market conditions.
In this situation a notably smaller company put Mobilcom on the spot.
In October of 2006 the mobile radiotelephone service provider Drillisch has surprisingly taken
over a 10.37% share of Mobilcom. Drillisch wants to create one mega-provider out of the four
biggest service providers in Germany. The goal is to get the competitors Debitel and Talkline as
well as the own company to operate under the name of Mobilcom. Therefore the CEO of Drillisch
wants the fusion of Freenet and Mobilcom to fail, so that Freenet can be sold to the highest bidding.
Regardless of the wishes of Drillisch, as Mobilcom´s supervisory board stated on the 6 th of
November, management is to stay focused on a fusion with its subsidiary company Freenet.
The sale of the stake held by France Télécom was linked with the shareholders’ claims for damages
against the French telecommunications group. As a party to the dispute, FT was unable to
take part in the vote in April 2004. At the extraordinary general meeting in October 2005, the new
owner of its former block of shares, TPG, was not bound by this restriction since it was not a party
Annex – 21 Case studies
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