France Telecom clinches Orange deal

France Telecom has bought UK mobile phone company Orange for £25.1bn from Vodafone, creating Europe's second-largest mobile phone company.

The French operator will also take over £1.8bn of the UK operator's debt.

Vodafone's Chris Gent negotiated the sale

France Telecom is to merge Orange, its French mobile phone network Itineris and its other mobile activities into a company called New Orange. This will be floated on the London, Paris and New York stock exchanges later this year.

It will be the second largest mobile phone company in Europe after Vodafone, with operations in Britain, France, Belgium, Portugal, Germany, Italy, and Eastern Europe.

Shortly after its announcement of the sale of Orange to France Telecom, Vodafone announced it had made a profit before tax and exceptionals of £2.4bn compared with £1.8bn in the previous year.

Profits before tax, but including all other costs, also rose sharply to £1.35bn, up from £935m.

At 31 March, Vodafone had more than 39.1m mobile customers worldwide, up from 25.4m at the same point in 1999.

In the UK, an extra 3.2 million people signed up for Vodafone services, taking its total number of customers to some 8.8m.

The strong results were in line with analysts' expectatations and reflect the Vodafone takeover of US operator AirTouch, but precede the period when it bought Mannesmann.

The sale of Orange will help Vodafone pay for third generation mobile phone licences in Europe.

Orange sale required

Under Chris Gent's management, Vodafone had acquired Orange, as part of its takeover of German telecoms giant Mannesmann earlier this year.

It has been required to sell Orange because of regulatory concerns that it would have too large a share of the UK mobile phone market.

The creation of New Orange is a major step in France Telecom's international strategy

Michel Bon, France Telecom chairman

Mannesmann paid some £20bn for Orange last February, originally owned by Hutchison Whampoa of Hong Kong - so Vodafone is getting a hefty premium on its acquisition.

The deal will put France Telecom on equal footing with its rival Deutsche Telekom, which already owns another UK mobile phone company, One2One.

The new company aims to have 30 million customers by the end of the year.

"The acquisition of Orange and the creation of New Orange is a major step in France Telecom's international strategy to become a European leader and global player," France Telecom chairman Michel Bon said.

The sale was welcomed by Orange chief executive Hans Snook. Mr Snook had originally threatened to leave if he didn't like the new owner. He said: "Michel Bon has the same vision as Orange has."

He says that the sale should mean more products and services for consumers at cheaper prices.

Orange will now be taking on its old owner Vodafone - the largest mobile company in Europe - in a battle for market share both in Europe and globally.

Under the deal, Vodafone now holds just under 10% in France Telecom, while the French government's stake will be diluted to 54% from 61%.

In a separate statement, the French Government said Vodafone was not expected to remain a long-term shareholder in FranceTelecom.

With the money gained from Orange's flotation, France Telecom hopes to buy back its shares from Vodafone.

Speedy sale

Vodafone had originally said it would sell Orange in the third quarter of this year, but the high cost of mobile licences - particularly in the UK - has encouraged the firm to act more quickly.

France Telecom is hoping that the deal will give it an opportunity to expand its presence in the new generation of mobile phones, which can carry a full internet service.

It already owns a stake in UK cable operator NTL, which is planning a roll-out of digital services.

NTL was one of the unsuccessful bidders for the new mobile phone licenses.

Rivals under pressure

The move will put pressure on other companies with big mobile phone ambitions in Europe.

Dutch telecoms operator KPN, which has the backing of NTT Docomo, Japan's mobile phone giant, had been in the running for Orange.

KPN recently snatched Germany's third-biggest mobile phone company, E-plus, from the hands of France Telecom.

Its failure to secure Orange will renew talk of a link with Spain's Telefonica, which collapsed due to political pressures last month.

Scandinavian telecoms operators Telia and Sonera also have pan-European ambitions.