German conglomerate Mannesmann and Vodafone AirTouch of Britain are to merge, creating the world's largest mobile telephones group.

The Mannesmann board agreed to the Vodafone offer after a seven-hour meeting in Dusseldorf, chairman Klaus Esser said at a press conference there.

The deal is one of the world's largest-ever corporate takeovers.

Mannesmann's management board recommends the offer but its 20-member supervisory board will meet to formally approve the deal on Friday.

"Mannesmann has reached an agreement with Vodafone AirTouch which creates a path to a single company. It is Mannesmann's assessment that this reflects the will of Mannesmann's shareholders," the company said in a statement.

"We have agreed between us that Vodafone AirTouch will be making a revised proposal to Mannesmann shareholders," Mr Gent said.

The announcement came four days before the close of Vodafone's hostile takeover bid for Mannesmann.

Under the terms of the revised �112bn deal, Mannesmann shareholders are expected to get 49.5% of the merged company, with Vodafone providing 58.96 of its shares for each Mannesmann share.

The revised deal values Mannesmann shares at 353 euros each.

Vodafone's Chris Gent will head up the company, while, contrary to expectations, Klaus Esser will stay with the merged company. His new role will be deputy chairman.

"They are two strong businesses and together we can go from strength to strength," a Vodafone spokesman said late on Thursday.

The new company will have joint headquarters in Dusseldorf and Britain.

The merger creates a huge IT group under Vodafone chief executive Chris Gent, with some 42 million customers and interests ranging from the Americas and Australia through the UK, France, Germany and Italy.

Savings from combining the two companies are estimated to total at least �500m, with a minimal impact on jobs as the pair have few overlaps in their businesses.

Powerhouse

The new merged company offers a huge range of internet and mobile phone services.

On Wednesday, Anglo-Dutch computer services firm CMG confirmed that it had agreed a deal with Vodafone to supply it with WAP (Wireless Application Protocol) technology for its mobile phones.

This is the technical standard that allows mobile devices to be used for internet access.

Other phone companies are expected to be urgently looking to secure alliances to compete with the threat posed by the Vodafone-Mannesmann deal.

The UK, Germany and the European Commission would have to give regulatory clearance to the merger.

This is likely to require the sale of mobile phone operator Orange, bought by Mannesmann last October.

Otherwise a combined Vodafone and Orange would be seen as being too dominant in the UK market.

The EC is expected to give an initial ruling on 17 February.

Hostile bid

A titanic struggle for control of Mannesmann has been raging since just before Christmas, when Vodafone made its ground-breaking original offer - the world's biggest hostile takeover bid.

Last-minute talks between the two sides had been arranged as time ran out for manoeuvring before it would come down to shareholders to decide.

Without an agreed deal, shareholders would have voted on Monday on whether to accept the takeover bid - and it was looking increasingly likely that they would have accepted Vodafone's hostile offer.

Share of ownership

The main sticking point has been share of ownership in the merged company.

Mr Esser was understood to have given up his idea of Mannesmann shareholders owning 58.5% of the new company, but was still not prepared to see German control slip below the 50% mark.

Mr Gent, on the other hand, was said to be adamant that his company's shareholders should own more than half of the combined group.

On Thursday morning, shares in Mannesmann had risen 119% since October.

There was a feeling that an agreed deal, even at such a late stage, could leave its shareholders with better terms than going for the hostile bid.

Vodafone has said it decided to launch the attack on Mannesmann after the German company decided to buy Orange - a UK firm.

According to Mr Gent, this deal - which was seen as a defensive move by Mannesmann - contravened a gentleman's agreement not to compete on each other's territory.