BUSINESSWEEK ONLINE : FEBRUARY 21, 2000 ISSUE
INTERNATIONAL -- EUROPEAN COVER STORY The Wizards of Telecom (int'l edition) Goldman has bankers behind nearly every big merger Vodafone AirTouch PLC's takeover of Mannesmann was also a huge win for Goldman, Sachs & Co. The American investment bank helped mastermind the winning bid for Vodafone's German rival--and will rake in a major chunk of the $640 million in fees Vodafone is expected to pay out. Goldman's success goes back to the late 1980s when the firm targeted telecom and media as a hot sector of the future in both Europe and Asia and carefully built a stable of clients they picked as winners in the coming merger wars. Thus Goldman has done almost every major deal for Vodafone since 1988, when it helped create the company from units of Britain's Racal Electronics PLC. ''I have to give them credit,'' says an executive at an American competitor in London. ''They saw things early.'' BIG HITTERS. But while Goldman's presence at the vortex of the telecom industry generates huge fees, the firm faces a daunting challenge in doing justice to all its powerful clients as the industry consolidates. ''It is becoming more and more difficult,'' says Vodafone CEO Chris Gent. ''There are too many telecom companies and not enough banks.'' Goldman's network of big hitters includes Deutsche Telekom CEO Ron Sommer and media mogul Rupert Murdoch. In Asia, Goldman is closely linked to Hong Kong tycoon Li Ka-shing: The firm helped his Hutchison Whampoa Ltd. sell its British mobile operator Orange PLC to Mannesmann for $33 billion last fall. Goldman is also the key adviser to Japan's cell-phone operator NTT DoCoMo. Telephone companies are ''the biggest elephants in the jungle,'' says E. Scott Mead, Goldman's global telecoms co-head. Mead came to London 12 years ago to build the telecom business. He and Goldman M&A specialist Simon Dingemans meet regularly with Gent to plot strategy and ''help bring Gent's dreams to reality.'' Gent likes the straight advice he gets from Mead and appreciates the entree to industry leaders that Goldman has given him. ''There is no question in my mind that we have a very strong team at Goldman Sachs,'' says Gent. But the partnership has had its stormy moments. Vodafone broke off relations after Goldman took Vodafone rival Orange public in 1996. The relationship was mended when Gent became CEO a year later. Yet Gent questioned Goldman's subsequent decision to help sell Orange to his German rival Mannesmann. ''This one didn't look too clever initially,'' says Gent. ''I said, 'I don't understand what is going on here. We are your major client.''' As a result, Gent says he had some ''punchy sessions'' with the likes of Goldman CEO Henry Paulson and Co-Chief Operating Officer John L. Thornton, who felt they could not turn down Li. But Goldman eventually convinced Gent and his board of its total commitment to the Mannesmann takeover. ''REPUTATIONAL RISK.'' The result is a cascade of fees, and Goldman is likely to earn more from helping Vodafone sell Orange to satisfy the antitrust authorities. Meanwhile, Goldman continues to refine its approach. The firm is creating a special unit of telecom bankers, high-yield pros, and private equity personnel within its London office to target more telecom and Internet deals. This reorganization reflects a view in the industry that providing capital for emerging telecom and Internet companies and taking stakes in them may surpass mergers and acquisitions as a big moneymaker. Goldman has $10 to $12 billion in tech-related IPOs lined up for this year already. It will remain a tricky task to serve such powerful and voracious masters. Goldman's role in leading Vodafone's hostile bid for Mannesmann led the German company, an occasional client, to sue the firm last fall. While a British judge dismissed the case, it still stung. ''They took reputational risk,'' says the rival executive. Mead says he spends a quarter of his time trying to avoid conflicts. But with the global telecom and media business consolidating and converging, his services remain much in demand. By Stanley Reed in London _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ BACK TO TOP					RELATED ITEMS The Race to Rule Mobile (int'l edition) EUROPEAN COVER IMAGE: Why Europe Loves Mobile TABLE: Three Titans Face Off What's a Cell-Phone User Worth? (int'l edition) The Wizards of Telecom (int'l edition) TABLE: Telecom Gold Commentary: Auf Wiedersehen, Germany Inc. (int'l edition) TABLE: A Deal with Impact INTERACT E-Mail to Business Week Online

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