France Telecom takes over Equant

Communications giant France Telecom has confirmed its long-awaited deal to take over Dutch-based network operator Equant.

This is a considerable step forward in France Telecom's international strategy

Michel Bon, France Telecom chairman

France Telecom - owner of UK mobile firm Orange - is combining Equant with its Global One corporate telecoms arm in a deal which gives it a controlling 54.3% stake in the Dutch company.

The widely anticipated deal creates a company with about 3,700 large business customers, including 75 of the world's top 100 companies, and revenues estimated at up to $3.0bn in 2000.

It values Equant at about 8 billion euros.

Equant chairman Didier Delepine will remain chairman of the new group, while Global One chairman Daniel Caclin will be chief operating officer.

In a joint statement, the two companies said: "The agreement ... creates a world-leading provider of data and internet protocol communications services for the business community by merging Global One with Equant."

Synergies

Equant shares initially soared 20.11% to 40.50 euros after the deal was announced, but had eased back to 36 euros by 0930 GMT, a gain of 6.73%. France Telecom shares were down 2.87% at 105 euros.

The deal is expected to produce substantial synergies from merging the Equant and Global One worldwide data networks.

Global One is aiming for a 20% market share in Europe for internet-based communications and managed data networks by 2004.

The deal also allows Equant's leading shareholder, Sita, to sell its stake, which it has been seeking to do for some time.

Sita provides telecommunications and information systems for the world's airline industry.

Deal details

France Telecom is acquiring 80.6 million new Equant shares in return for Global One's data business and $300m in cash.

It is also buying Sita's 34% stake, or 68 million shares, in Equant in return for existing France Telecom shares.

Under the deal, one France Telecom share is exchanged for 2.2 Equant shares owned by Sita, valuing Equant at 51.1 euros per share on the basis of the French operator's average share price over the past 30 days.

France Telecom said the transaction with Sita was worth some 3.5 billion euros.

Investment

The French operator also said it would invest $1.0bn in accelerating Equant/GlobalOne's development strategy, in exchange for 10 million new Equant preferred shares.

These shares would be convertible into ordinary Equant shares at $100 a share five years after the completion of the deal.

France Telecom plans to consolidate Equant fully by the second quarter of 2001.

The merger of Equant and Global One was expected to deliver "substantial" revenue synergies and annual operating cost savings of $300m by the third year.

It was also expected to reduce duplicated capital expenditure by about $75m a year.

Restructuring costs from the merger would be about $400m, half of which would be financed by France Telecom.

The companies said the expected synergies should enable the merged Equant/Global One to make a profit (in earnings before interest, tax, depreciation and amortisation, or Ebitda) 12 months after the closure of the deal.

Equant has a joint venture with news and financial information group Reuters, called Radianz, to supply the financial industry with a secure global internet protocol.