Continuing this IDCC, UbiNetics, Orange and France Telecom train of thought.....
France Telecom's Orange crush
France Telecom is poised to become the main challenger to Vodafone AirTouch for global mobile supremacy with its acquisition of Orange for œ25.1 billion. A combined mobile operation, which will be called Orange, is expected to have over 30 million subscribers by the end of the year. New Orange will be listed in London, Paris and New York in late 2000 or early 2001. Hans Snook will the CEO of the new company. At a packed press conference, Snook said as Orange prepared for another new owner, "This agreement will allow Orange to fulfil its global vision."
The management issue was a key factor behind this deal. Snook and his colleagues had favoured a demerger of Orange, rather than a new owner. One of the major successes for France Telecom was its ability to persuade the existing management that their long-term interests would be served by agreeing this deal. It also allows Orange the global platform to compete against Vodafone AirTouch head-to-head. A challenge that no doubt appealed to Snook and company.
Graham Johnson, a telecoms equity analyst at HSBC told TDR that the deal was a significant move for France Telecom, "There was the thought that with France Telecom pulling away from the 3G auctions in the UK, not winning E-Plus, that perhaps they were not being aggressive enough in terms of these big deals. From that point of view, it gets rid of a big question mark on how aggressive they are prepared to be. Clearly, it is an expensive deal but you have to look at what it gives France Telecom. They have been sensible enough to make sure that they keep on board Hans Snook and Graham Howe and have the Orange management team behind them. That is very important."
The selling of Orange to France Telecom had been widely predicted. Vodafone needed cash for further investments in UMTS licences, and France Telecom had long since coveted Orange. Other interested parties were thought to include KPN Mobile and NTT DoCoMo and Telef¢nica. For France Telecom, which had missed out on gaining UMTS licences in Spain and the UK, the deal represented an important breakthrough in its international strategy. Michel Bon, the chairman and CEO of France Telecom said, "The deal is a big step for France Telecom. We will now have a presence in 16 European and Mediterranean countries and it signifies our intentions on becoming a global player."
France Telecom may have gained a world class asset, but it did not come cheap. It will pay œ13.8 billion to Vodafone and issue 129.2 million France Telecom shares at E140.2 per share, valued at œ11.3 billion in order to fund the transaction. Vodafone will have a 10% stake in France Telecom. The IPO of New Orange will allow France Telecom to repurchase up to œ8.4 billion of shares held by Vodafone at any time after the issue. Jean-Louis Vinciguerra, the CFO of France Telecom said the operator would sell stakes in non-core assets such as Deutsche Telekom, Telmex and Sprint which have a current market value of E20 billion to help finance the deal.
For France Telecom, the buyout is just further evidence of an increasingly successful international strategy taking shape as Johnson explains, "Deutsche Telekom's bid for Telecom Italia meant their whole relationship with DT fell apart. Their international strategy was in a mess. If you look at it now, it is probably third only to Telef¢nica and Vodafone in terms of how well they have developed their international strategy. They have been very good in picking out the important areas."
Orange's rise over the last few years has been nothing short of phenomenal. The operator now has over 22% market share in the UK. The operator has one of the most recognisable brand names in the industry. In 1999, the operator more than doubled its customer base and already has added more than 1.6 million new customers this quarter. With Itineris growing its customer base by over 80% in 1999, the operator seems well placed to grow still further. It will now try and export its vision of a wirefree future to customers around the world. By 2005, Orange hopes to have a presence in over 50 countries and Snook maintains that growth in mobile communications "has not really started yet."
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