France Télécom SA and London-based mobile phone operator Orange PLC formally celebrated yesterday's announcement of their 26.9 billion pound ($US40.2 billion) merger with a joint press conference extolling the virtues of what will become Europe's second-largest wireless telecommunications company.
Under the terms of the deal, which was agreed upon on Monday after three months of negotiations, France Télécom will pay Vodafone AirTouch PLC 25.1 billion pounds in a mixture of cash and shares and will also take on 1.8 billion pounds in Orange debt, said Michel Bon, chairman and chief executive of France Télécom.
"Now that we are teaming up together, we think we have the ability for rapid expansion throughout Europe and globally," Bon said.
Orange will be merged with France Telecom's existing mobile operations, including Itineris, and will continue to operate under the Orange name, though the new company is being called "New Orange" internally. Hans Snook, Orange's chief executive officer, and Graham Howe, chief financial officer and deputy CEO, will run the company, with Bon taking over the role of chairman of the board.
France Télécom will make public a minority portion of Orange stock on the London, Paris and New York stock exchanges in the fourth quarter of this year or in early 2001, Bon said. Furthermore, France Télécom is also planning to issue an initial public offering (IPO) of its internet service provider Wanadoo.
"France Télécom hasn't been particularly advanced in offering new services, so this is a good strategy for the company," said Tim Sheedy, senior mobile analyst for IDC. France Télécom is also wise to keep the Orange brand name, which is very strong in Europe, especially since France Télécom is "saying that it's major focus is Europe, which is also a good plan", Sheedy added.
As part of Orange's debt acquisition, France Télécom will pay the UK government 1.8 billion pounds directly for the hotly contested third-generation (3G) mobile licence that Orange won in bidding that ended last month. Vodafone will receive a total of 25.1 billion pounds from France Télécom, said Jean-Louis Vinciguerra, France Télécom's executive vice president and CFO. "We think it is a reasonable price, though I will not tell you it is cheap," Vinciguerra joked.
A cash payment of 13.8 billion pounds will be paid to Vodafone on completion of the sale, subject to adjustment for the actual net debt of Orange on March 31, Vodafone said in a statement.
The deal, which will be paid for in euros due to exchange reasons, is expected to be completed in late July or August pending approval from the European Commission and confirmation that Orange will be granted the UK 3G wireless licence, Vinciguerra said.
Bon pointed out that the Orange merger with France Télécom is also an advantage to its partner, the UK-based cable company, NTL Group Ltd. "Clearly there is large room for synergy between a cable company and a mobile operator. This deal is clearly a good deal for NTL also," Bon said.
NTL Mobile, the joint venture of France Télécom and NTL, attempted to buy a 3G licence in the UK auction but pulled out in the second to last stage of the bidding.
The merger between Orange and France Télécom is relatively similar to Mannesmann AG's buyout of Orange last October for 19.8 billion pounds. "I feel like I've been here before," said Snook. "But last time some people noticed I was wearing an all black suit, today I am wearing more colour (grey) to signify that this is the agreement that will enable Orange to fulfil its future," Snook added.
Orange has been on the block as a result of Mannesmann's pending acquisition by Vodafone AirTouch, in which Vodafone must sell Orange if it wants to gain regulatory approval from the European Commission for the acquisition. Orange had also been courted by Dutch telecommunications operator Koninklijke KPN NV and US-based MCI Communications.
Orange is seeking to buy additional 3G licences in Italy, Germany and France but Snook declined to speculate if those licences would prove to be as expensive as the UK licence. "We are not going to tell people what our bidding strategy is but we intend to bid on the licences," Snook said.
Vodafone plans to use the proceeds of the sale of Orange to fund its acquisition of 3G licences across Europe, the company said.
France Télécom had previously announced plans to sell its stake in US-based Sprint, as well as its shares of Deutsche Telekom AG and the Mexican telecommunications company Teléfonos de México SA de CV (Telmex). The proceeds from those sales, as well as the company's planned public offerings, will go toward paying off the bank loans for the acquisition of Orange within the next three years, Bon said.
In terms of establishing a presence in the US market, something France Télécom and Orange do not now have, Bon said that though they were "aware that you can't be a global player if you aren't in that market", it was important to consolidate its strength in Europe first. "If you want to exist in the US market, you have to be strong. After we integrate in Europe we'll look towards North America. We might do a virtual network operation there or it might be a licence franchise agreement," Bon said.