France Telecom Poised to Pounce on Orange
26/5/2000 17:40 by Annemarie Quill
Telecoms Correspondent
As first reported in TheStreet.co.uk in February, France Telecom, the former state-controlled French telephone company, is poised to pounce with a knockout blow for mobile operator Orange.
Market sources say that the bid - which could be as high as œ45 billion - could come as soon as next Tuesday. Which would mean that Vodafone (VOD:LSE) (Board) would be announcing its plans to divest Orange at the same time as unveiling its annual figures.
At one stage analysts believed that Orange could fetch up to œ50 billion in a sale. However, since the slump in technology, media and telecom stocks in March, the price has fallen.
--------------------------------------------------------------------------------
Capital markets souces said that France Telecom is also being advised on a rights issue to fund the bid
--------------------------------------------------------------------------------
Nevertheless, France Telecom's likely bid is substantial, and the deal is expected to take the form of cash and shares. For the cash part, France Telecom has lined up a jumbo œ20 billion loan from a group of banks led by Citibank and Morgan Stanley. Capital markets souces said that France Telecom is also being advised on a rights issue to fund the bid.
Orange management, headed by chief executive Hans Snook, has let it be known that they would prefer a separate delisting rather than a trade sale. But it is now thought that France Telecom was always Vodafone's preferred buyer for Orange, and sources in the capital markets say that Chris Gent contacted France Telecom to informally discuss its interest in buying the company should Vodafone be successful in acquiring Mannesmann.
Nevertheless, any buyer of Orange would be keen to come to an amicable agreement with the Orange management board and take steps to ensure that they stay. After all, the board is widely seen as responsible for Orange's considerable success to date. Orange's branding and marketing strategy has been widely admired, and despite the complications of being sold by Hutschison to Mannesmann and then to Vodafone, the management has managed to maintain Orange's status as the UK's fastest growing mobile company.
Another complication in the proposed sale to France Telecom is that the disposal has to be approved by the trustee committee set up by the European Commission to approve a fair demerger. Bankers believe that the European Commission could still insist on a clean sale, which would mean that France Telecom may have to stump up all cash rather than paper, which would ensure that Vodafone no longer retained any interest in the business.
The method of the disposal and the identity of a buyer is doubly important to Vodafone as the eventual owner of Orange will become a formidable competitor to Vodafone's cellular services in the UK. Orange has the most advanced network in terms of quality and coverage of all the four UK operators and many believe it also has the best branding. Orange has dominated subscriber growth in the UK in the past two quarters and has a market share of 22%, compared with Vodafone's 32%. But Gent always knew that a consequence of acquiring Mannnesmann was losing Orange, and this has been factored into Vodafone's business plan and competitive strategy in the UK.
In any case, a move next week by France Telecom is expected to spark off the long awaited bidding war for Orange. It is likely to prompt the other bidders to finally play their hand. Also in the frame are Dutch telecom group KPN in cahoots with NTTDoCoMo, which recently took a stake in the Dutch operator. The US giants such as BellSouth and SBC may also be eyeing Orange. MCI Worldcom is also believed to be considering an offer.
|
