French bid for last slice of Orange

FRANCE Telecom today launched a recommended e6.3bn (£4.4bn) bid for the 13.8% minority stake it does not own already in its highly-successful UK and French mobile subsidiary, Orange.

The share-swap offer, at a 14% premium to Friday's Orange closing price, will be financed through the issue of 218m new France Telecom shares. It will bring Orange's two-and-a-half years as a separately-listed company to an end.

Shares in France Telecom slipped 3.19% to e21.88, valuing the 11-for-25 paper offer at e9.63 a share. Orange shares, listed in Paris and London, rose 13% to e9.57, or 87 1/2p to 670p.

The buy-in by France Telecom, capitalised at e48.6bn, of the minority shares in Orange, capitalised at e46bn, has been awaited by analysts since the appointment last November of a new rescue-management team to France Telecom headed by chairman and chief executive Thierry Breton.

The deal, which will enable France Telecom to consolidate Orange's impressive ability to generate cash, will also have the effect of reducing the stake of the French government in France Telecom from 58.7% to 54%, the level before April's e15bn rescue rights issue.

The Orange buy-in also removes a distortion dictated by French government rules. France Telecom was forced to float a minority in Orange in February 2001 so that the mobile operator could expand by acquisition, because the State's stake in France Telecom could not be diluted below 51%. With the government wanting to cut its stake to raise cash to fund other industries, acquisitions can be bought with France Telecom shares.

Accepting Orange shareholders would have lost dividend payments but France Telecom said today it will resume dividend payments itself next year.

The offer came alongside halfyear results from France Telecom, which surprised the market by bouncing back into the black, with subsidiaries Orange, internet-service provider Wanadoo and corporate telecoms group Equant showing a strong recovery in core business.

Net profit at France Telecom surged to e2.52bn, against a loss of e12.2bn after write-downs in the same months of last year, on revenue ahead 1.7% to e22.9bn.

Underlying operating profit surged 46% to e4.6bn while group debt plunged from e49.3bn last December to e18.7bn.

Wanadoo pulls Dixons plug

FRANCE TELECOM internet subsidiary Wanadoo today severed links with electrical retailer Dixons, co-founder of its UK arm Freeserve, making Lloyds Pharmacy with its 1,354 outlets its new internet connection distributor for Freeserve instead.

'By accepting the renewal of the contract terms demanded by Dixons, Freeserve would have put itself further from its priority objective: to become profitable from 2004,' Wanadoo said. Dixons' contract to distribute low-volume connections expires next February while a similar deal for high-speed connections for Freeserve runs until February 2005. Dixons is to offer connections with AOL instead.