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Monday, 8 January, 2001, 12:29 GMT
Orange float gets go-ahead
Orange chief executive Hans Snook
Chief executive Hans Snook is leaving Orange to pursue other interests
France Telecom has kicked off its marketing campaign for the flotation of the mobile phone operator Orange.

The French firm confirmed that it planned to sell up to 15% of the company that it bought from the UK's Vodafone for 25bn ($38bn; 39bn euros) last year.

The deal, expected to be one of the largest to come to European markets this year, will allow the new Orange - which also includes almost all France Telecom's wireless assets - to pursue a global expansion drive like its larger rival Vodafone.

Analysts said the addition of France Telecom's interests had boosted Orange's value to about 100bn. But a sharp downturn in investor sentiment towards telecoms had now reduced its value to about half that.

France Telecom chairman Michel Bon on Monday said Orange was likely to be valued in a range of 70bn-80bn euros (44bn-51bn).

Important barometer

The Orange flotation is being seen as an important barometer for the sector as a whole.

Last year, when telecoms stocks tumbled, Spain's Telefonica Moviles and Telekom Austria were forced to scale back share offerings.

Orange's experience will be watched closely by British Telecommunications, Deutsche Telekom and KPN of the Netherlands among others. All are aiming to spin off their mobile operations later this year.

On Monday, France Telecom began marketing Orange to potential retail buyers in the UK and Germany. Final pricing of the offer - also open to customers in France and Italy - is not expected until mid-February, following which trading in the shares will begin.

Two scenarios

Analysts predicted one of two scenarios for the flotation. Either it would flop, falling victim to poor sentiment in the sector. Or, given the turbulent market conditions, France Telecom would price it attractively enough to draw in investors in big numbers.

If France Telecom took a pessimistic view of the market, it might choose to sell only 10% of Orange - ensuring high demand - and wait for a pick-up in sentiment before releasing more shares, the analysts said.

"France Telecom is caught between a rock and a hard place," one analyst said. "It needs to float as much of Orange as it can for liquidity reasons but must optimise demand at the same time or risk a flop and more pressure on its debt ratings."

Orange will have business in 19 countries and a customer base of about 30 million.

Srong subscriber numbers

But, like many of its rivals, it suffers from large debts built up acquiring third-generation mobile phone licences throughout Europe.

Last week, it released a set of strong UK subscriber numbers, growing faster than any of its rivals for the fifth successive quarter.

At the end of 2000, Orange had 9.8 million subscribers in the UK, double a year previously.

Although British Telecommunications' BT Cellnet has yet formally to report figures for the final quarter of 2000, analysts said Orange might now have overtaken it to claim second spot among UK operators.

Refinancing

Mr Bon said: "The creation of the enlarged Orange and its planned listing as an autonomous quoted public company are two of the most significant moves France Telecom has made.

"By combining almost all of our mobile interests with Orange, we have created a European leader and one we believe has the potential to become a world leader."

The group will have a primary listing on the Paris bourse and a secondary listing in London.

The share issue will be accompanied by sale of a bond exchangeable for shares that might increase the size of the overall sale by as much as a third.

France Telecom will use the proceeds to refinance the acquisition of Orange, which was completed last August.

As part of this, it will buy back its stock held by Vodafone, which had been transferred in part-payment for Orange.

Also on Monday, Vodafone confirmed that it was spending almost $1bn acquiring 34.5% of Mexico's number two mobile phone operator.

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See also:

08 Jan 01 | Business
Orange's bright future
28 Nov 00 | Business
Orange chief steps down
30 May 00 | Business
France Telecom clinches Orange deal
21 Oct 99 | The Company File
Orange takeover agreed
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