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Wednesday, 7 February, 2001, 12:34 GMT
Orange share price cut
Orange logo
Orange share price could but cut again
France Telecom has cut the value placed on its mobile phone operator Orange by nearly a fifth after a lukewarm reaction to its flotation plans.

It is understood that institutional investors have been concerned about the slowdown in the mobile phone industry and were unhappy with the value Orange's owner placed on the business.

The news comes ahead of the flotation, due to take place on Tuesday.

It will be a blow to other groups such as British Telecom, Deutsche Telekom and KPN of the Netherlands, which have been planning to float their mobile phone operations later this year.

Orange's new valuation is 45.6bn-52.8bn euros ($42.5bn-49.2bn; 29.1bn-33.7bn)

Increased discount

In a statement, France Telecom said: "Because of difficult market conditions, France Telecom has decided to adjust the price range in order to ensure the success of its placement of Orange shares and to favour further evolution of the stock on the market."

Many retail investors in the UK have applied for Orange shares, in what was expected to be one of Europe's biggest share offerings.

They will still receive a 0.5 euro a share discount compared with the price paid for the shares by institutional investors, France Telecom said.

This means the discount for retail investors is effectively being increased to 4.9% from a previous 4%.

Subscription period extended

France Telecom also said on Wednesday it was extending the subscription period for retail investors by one day until 1600 GMT on Friday.

Institutional investors have the same Friday deadline.

Final pricing and allocation of the shares is due to be on 13 February, when trading will also begin in Paris and, on a conditional basis, in London.

The French company had set a price range for Orange shares of 11.5-13.5 euros when it starting marketing the flotation.

This valued Orange - which also now includes most of France Telecom's other wireless assets - at 55.2bn-64.8bn euros ($51.3bn-60.2bn; 35.2bn-41.3bn).

France Telecom has now cut the indicative price range to 9.50-11 euros (6.1-7), reducing the value of its flotation by roughly 10bn euros.

The new valuation is 45.6bn-52.8bn euros.

'Properly priced'

The influential Lex column in the Financial Times newspaper said Orange "might be properly priced" at about 50bn euros.

This valuation would reflect a 10% discount to Vodafone on expected 2003 earnings and a further 10% discount needed to attract investors to an initial public offering.

Vodafone should command a premium to Orange because it had a bigger worldwide presence, analysts said.

France Telecom shares fall

As recently as last year, analysts had valued Orange at about 150bn euros.

A sharp decline in investor sentiment towards telecoms saw that figure plunge.

But just before the flotation's launch a valuation of Orange at 70bn-80bn euros had seemed possible.

France Telecom shares were 5.8% lower at 83.8 euros in early afternoon trading in Paris on Wednesday as investors took a dim view of the latest developments.

UK telecoms shares were also lower, partly because of a statement from Oftel, the industry regulator, which said operators' profits showed competition was lacking.

At 1135 GMT, Vodafone - the world's biggest wireless network operator - was down 3.2% at 221.25 pence. BT - owner of the BT Cellnet network - had lost 5.8% to 680p.

Share buyback

France Telecom had paid about 25bn ($36bn) in May last year to buy Orange from the UK's Vodafone.

It needs to float Orange in order to raise money for buying back the shares of its own that it transferred to Vodafone as part of the transaction.

Under that deal, France Telecom must buy back at least seven billion euros of shares by the end of March and the remaining seven billion in the year following that.

Like other European wireless operators, France Telecom has also built up huge debts acquiring third-generation mobile phone licences.

Its stated aim is to halve its 60bn euro debt mountain by the end of 2002.

As part of attempts to improve its financial position, the company on Wednesday also said it was considering selling its 17% stake in Sema Group, the UK-French software firm.

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See also:

07 Feb 01 | Business
A bright outlook for Orange?
22 Jan 01 | Business
Orange's cut price share sale
08 Jan 01 | Business
Orange float gets go-ahead
06 Feb 01 | Business
Vodafone: No US float timetable
07 Feb 01 | Business
Mobile phone price concerns
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