As Rival Mannesmann Bids for Orange, Deutsche Telekom Can't Shake the Blues

For Deutsche Telekom, Mannesmann's invasion of the British Isles isn't its only pressing concern.
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BERLIN -- If Germany's Mannesmann (MNNSY) succeeds in snapping up a majority stake in U.K. mobile-phone company Orange (ORNGY) , shareholders in German giant Deutsche Telekom (DT) - Get Report may soon be seeing red.

Having lost the top spot for mobile operators to Mannesmann at home, the former state-run Deutsche Telekom would then have to face its archrival in Britain -- and from a weak position to boot. Acquiring Orange, the U.K.'s third-largest cellular operator, would place Mannesmann ahead of Telekom on the Isles, where DT owns

One2One

, Britain's fourth-largest cell-phone operator.

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The two companies have tangled in the past. Mannesmann dropped out of contention for One2One in August, saying the U.K. company was too expensive. But it didn't lose interest in Britain. On Tuesday, the conglomerate confirmed it was speaking with Hong Kong's

Hutchinson Whampoa

to acquire almost 45% of Orange for an estimated $25 billion. And many analysts expect Mannesmann to attempt a full takeover should the bid go through. Orange closed U.S. trading Wednesday down 13/16 at 115 5/8.

For Deutsche Telekom, Mannesmann's invasion of the British Isles isn't its only present concern. The company's erstwhile partner

France Telecom

(FTE)

announced Monday that it was obtaining a majority stake in German mobile-phone operator

E-Plus

, thereby taking on DT in its home market. The aggressive moves by both Mannesmann and France Telecom highlight just how precarious Deutsche Telekom's position is.

Half a year ago, DT Chairman Ron Sommer incensed his French partners by making a surreptitious and ultimately

failed bid for

Telecom Italia

(TI)

, which coincidentally operates distinctive orange phone booths, leaving the Franco-German alliance in tatters. And now with Mannesmann dominating the domestic mobile market and on the march elsewhere in Europe, the last thing Sommer can afford is to stall abroad while letting his former French pals make inroads at home.

Even with its acquisition of One2One, however, Deutsche Telekom's recent strategy can be best described as passive. DT stood by quietly as

MCI WorldCom

(WCOM)

gobbled up its most promising U.S. partner,

Sprint

(FON)

, and it also appears likely that France Telecom will take over the moribund DT-FT-Sprint joint venture

Global One

.

Deals such as One2One clearly won't cut it alone in the strategic acquisition department. In light of Mannesmann's play for Orange, alacrity on Telekom's part is all the more critical. "Orange will fill an important gap for Mannesmann in its fast-growing portfolio

and underlines

the company's pan-European ambitions," says Steve Jobber, an analyst for

Paribas

in London. Paribas rates Mannesmann a buy, but doesn't have an investment banking relationship with the firm.

Sommer was able to keep his job after the deal with Telecom Italia went horribly awry, but unless Deutsche Telekom regains the necessary momentum to keep up with the industry's pace of consolidation and dealmaking, his future at the top may become anything but certain.

When trying to cut a deal with Telecom Italia last spring, Deutsche Telekom said the company's large magenta "T" leitmotif was sacrosanct, but perhaps things would have gone better if it had opted for the Italians' orange logo instead.