London, May 30: France Telecom on Tuesday clinched a 25.1 billion pound ($37billion) cash and share deal to buy Britain's third biggest mobile phonegroup Orange Plc, and vowed to take the Orange brand global.
The deal with Vodafone Airtouch plc, which had to sell Orange to winregulatory approval for its purchase of Germany's Mannesmann, has created anew European cellphone group that could be worth up to $141 billion.
The hard-won deal set the total price for Orange at 31 billion pounds, oraround 50 billion euros ($46.25 billion). The French company is paying 13.8billion pounds in cash and 11.3 billion in France Telecom shares. As aresult, the French government will reduce its stake in its leading telecomsoperator to 54 per cent from 61 per cent. France Telecom will also take on1.8 billion pounds in Orange debt and arrange a loan to pay 4.1 billionpounds for Orange's British third generation UMTS mobile licence.
But the French operator is planning to recoup some of its outlay in therelatively near future.
Chief financial officer Jean-Louis Vinciguerra told a news briefing inLondon it expected to list 10-15 per cent of "New Orange" in London, Parisand New York in the fourth quarter of 2000 or in early 2001. The new companywas likely to be valued at 100 billion to 150 billion euros ($94billion-$141 billion), Vinciguerra said, based on an estimated 30 millionsubscribers at year end and 5,000 euros per subscriber. France Telecom saidit would use the proceeds from the listing of Orange to repurchase up to 8.4billion pounds of the France Telecom shares held by Vodafone, which is notallowed to dispose of any stock for six months after issue.
The French giant, which has been eager to clinch Orange since abandoning itsown bid for a British new generation mobile licence in April, said it wouldroll its mobile interests - including its domestic Itineris brand - into NewOrange.
With a customer base of around 21 million, it ranks alongside Telecom ItaliaMobile and Deutsche Telekom but behind Vodafone, the world's biggestcellphone group. In a major coup for Orange's ambitious chief executive HansSnook, the new company will retain the Orange name and will be run by Snookand his right hand man, Orange's deputy CEO and Finance Director GrahamHowe. The French giant is paying around 6,741 euros per customer in a dealthat will see Vodafone take just under 10 per cent of France Telecom innon-voting shares. "The acquisition of Orange and the creation of New Orangeis a major step in France Telecom's international strategy to become aEuropean leader and global player," France Telecom CEO Michel Bon said.
Snook, who had vowed that any unwelcome Orange buyer would find an emptyboardroom, said that the deal more than doubled Orange's scale, reach andcapacity and created a platform from which to build to a leading globalwirefree business.
The Orange brand operates in seven countries around the world including HongKong and Israel, and Snook already has his eye on expansion into the UnitedStates.
"Obviously our initial focus is going to be on Europe, on integrating andconsolidating what we've got," Snook told Reuters. "But to be a globaloperator we have to operate in at least North America as well."
Snook said he expected the deal would create opportunities for working withAnglo-American cable operator NTL Inc, in which France Telecom owns 25 percent.
Orange would also look at further UMTS (Universal Mobile TelecommunicationsSystem) licences in Europe and broadband licences coming up in the UnitedStates, he said.
As France Telecom shares pared early gains to stand almost flat at 144.7euros by 1130 GMT as investors took profits on a strong opening performance."Strategically, it's great news and the numbers are in line with what we wreexpecting. But I think some people who bought before the announcement arenow selling into the strong open," said one senior trader in Paris.
Vincent Fravel, telecoms analyst at French brokerage KBC, said it was up tothe former French monopoly now to convince the markets of its ability tomake the investment profitable.
"It has given a strong sign of its determination to act fast in order todominate the future," he said, setting a price target of 150 euros on thestock and raising his rating to "add" from "reduce".
France Telecom said the creation of New Orange would generate pre-tax cashflow savings of over 800 million euros per year by 2003. Enhanced revenuesare expected to generate over 450 million euros and operating cost andcapital expenditure savings of over 350 million euros.
On a proforma basis, France Telecom said the new company would have hadconsolidated revenues of around eight billion euros in 1999. The deal willbe EBITDA (earnings before interest, tax, depreciation and amortisation)neutral in 2001 and thereafter.
The deal is conditional on European regulatory approval, but France Telecomsaid it expected to complete the deal in late July or August 2000.
France Telecom was advised by Morgan Stanley Dean Witter, Credit SuisseFirst Boston and Rothschild, while Vodafone was adivsed by Goldman Sachs andUBS Warburg. Orange was advised by Dresdner Kleinwort Benson and Donaldson,Lufkin & Jenrette.
Copyright © 2000 Indian Express Newspapers (Bombay) Ltd.