France Telecom nears $ 46 bn Orange deal

France Telecom is expected to pay around 20 billion euros in cash, 20 billion euros in stock and take on Orange’s 2.5 billion pounds ($3.69 billion) of debt plus the 4.1 billion pounds Orange is paying for a new-generation British mobile licence.

It then plans to roll Orange into its cellphone businesses, including its leading Itineris domestic brand, and spin off a new mobile group which, with around 20 million customers, looks set to rank alongside Deutsche Telekom, and behind giants Vodafone and Telecom Italia Mobile.

Although final details are still being hammered out and regulators have yet to bless the deal, it is likely to leave Vodafone – the world’s biggest mobile phone company – with a holding of around 10 per cent in non-voting France Telecom stock.

Stripping out the price Orange paid for a coveted broadband UMTS (Universal Mobile Telecommunications System) mobile licence in April, the French appear prepared to pay around 33 per cent more for Orange than Germany’s Mannesmann paid last October. Mannesmann, which was in February snapped up by Vodafone, paid around 20 billion pounds for Orange at that time and saw its shares dive amid shareholder accusations it had overpaid.

But despite a recent sharp correction in global telecoms shares, European telecoms stocks stocks are still trading at a premium to US peers on hopes of fat returns from a new generation of high-speed data services on mobile phones. And Vodafone’s sale of Orange – demanded by regulators before they approved its Mannesmann deal – has triggered much rival bid interest.

As France Telecom’s shares hovered around their Friday close of 141.8 euros, analysts said the French giant — which is keen to stake out a leading position in a fast-consolidating market — had to pay up to keep up.

"The move is absolutely necessary given that there will only be two or three big European players…and France Telecom had little in Britain, whereas Vodafone is already present in a fair few countries," said Lionel Parisot, analyst at CIC/EIFB. But another added: "Long-term, I think it looks expensive."

Pressure has mounted on France Telecom, the most overtly ardent of Orange’s suitors, to clinch the group since it abandoned the costly British UMTS third-generation mobile licence auction in April.

Like its key European rivals Vodafone, Deutsche Telekom, British Telecommunications Plc, Telecom Italia and Telefonica of Spain, France Telecom is keen to secure its future mobile revenue streams by winning a UMTS licence in all the key markets in which it operates.

France Telecom plans to list a minority stake in the new mobile phone company within 12 months — and possibly as early as this autumn — to give the group the currency for further acquisition deals, industry sources say.

The new company, which will be headed by Orange’s ambitious Chief Executive Hans Snook, will have operations in France, Britain, Denmark, Belgium, the Netherlands, Italy, Austria and Switzerland.

The sale of Orange — the last, independent, pure-play mobile operator in Europe — had been expected to trigger a bitter auction battle between the likes of France Telecom, Dutch carrier KPN Telecom and MCI WorldCom.

Orange, the youngest cellphone group in one of Europe’s key mobile phone markets, has won a reputation for innovation, and Snook is considered one of the industry’s visonaries.

Insiders say although Snook agreed to a Mannesmann takeover last year, he became so unhappy at the prospect of losing control of his company’s destiny that he was close to quitting. And he has warned that any Orange bidder would find an empty board room if top management did not endorse the terms.

The Mannesmann deal gave Snook a package thought to be worth 45 million pounds — 15 million in cash and 30 million in performance-related payments. France Telecom is expected to offer a similar incentive.

Armed with a 20 billion pound loan, the French were the quickest to offer a serious proposal for Orange and won an exclusive negotiating period with Vodafone, which has become increasingly eager to cut a deal to help fund an expected 20 billion pound bill for UMTS licences across Europe.

Sources decline to divulge how long the exclusivity period would last if talks hit a last minute snag.

But if all goes according to plan, France Telecom and Orange will make a joint statement in Paris on Tuesday morning, and Vodafone will bring forward its financial results to Tuesday morning from Tuesday afternoon.