Text of the Financial Times "GPRS eats" article (in case the link expires).
Orange faces IPO test
By Dan Roberts in London
Published: January 12 2001 20:46 GMT
Last Updated: January 12 2001 21:59GMT
A doomsday scenario is being whispered among those
close to the debt-laden mobile phone industry: what
happens if Orange has to pull its float?
Europe's largest initial public offering was only confirmed
this week and has several weeks to run before investors
must part with their money, but the timing could hardly be
worse.
Technology share prices, and telecoms stocks in particular, are hovering
somewhere between a tough bear market and freefall. Every piece of news is
scrutinised for negative implications.
A sustained run of bad reports could make life very tough for the bankers
marketing Orange on behalf of its current owner, France Telecom.
Nokia, the world's largest mobile handset manufacturer, proved how jittery the
market was on Tuesday with sales figures only fractionally below what analysts
had expected. Its shares tumbled 18 per cent on the news, and have been
recovering only slowly since.
Motorola, another bellwether for the industry, did not help matters the next day by
confirming what a dreadful time its handset business has been having and
refusing to give its usual financial forecasts for the coming year.
Investors looking for a bargain by subscribing to cut-price IPOs such as Orange
are highly vulnerable to any more bad news.
One threatening storm cloud is the disappointing performance of new technology.
Operators such as Orange are keen to mitigate the cost of developing
third-generation networks by exploiting an intermediate technology known as
GPRS (general packet radio switching) to provide high-speed internet access.
Large volumes of handsets had been promised for Christmas but have been
delayed by incompatability between networks and manufacturing shortages.
Similar problems may also push back the timetable for 3G or UMTS (universal
mobile telecoms system) deployment by up to a year.
Firm evidence of the GPRS and UMTS time-bomb has yet to hit the market, but it
would add to concerns that the business model promised by Orange will suffer
from saturation among traditional voice customers long before internet revenues
arrive.
All this will be the subject of the usual haggling between potential Orange
investors and the company. But what should give this added urgency is the
knowledge of what happens if France Telecom does not raise its money.
As part of its deal to buy Orange from Vodafone, France Telecom agreed to a
series of put options and loan notes, which mean it must pay Vodafone a
minimum of £4.8bn ($7.1bn) in March if it does not go ahead with the float.
Jean-Louis Vinciguerra, France Telecom's finance director, is adamant that other
financing methods remain, but with group debts at E60bn ($57bn), the Vodafone
cash requirement remains a powerful reason to plough on with the IPO.
On the other hand, valuation ranges have already fallen sharply: down from
E100bn-E150bn (given when Orange was bought), to E70bn-E80bn (given by
those close to the company last week) and E62bn-E70bn (in recent analysts'
research). If Mr Vinciguerra and his team find that market conditions have driven
pricing to levels where it is less painful to turn to other financing methods for
Vodafone's money, then pulling the Orange IPO may happen yet.
© Copyright The Financial Times Limited 2000. |
