In September, France Telecom held an 87% controlling stake in Orange, with the remaining 13% held by minority shareholders. It offered 11 of its own shares for 25 Orange shares, implying an 18% premium to Orange’s closing price before the plan was announced.
However, 1.2% of Orange shareholders decided to reject France Telecom’s all-share offer, and today’s cash offer means they will receive $11.02 (E9.50) in cash when the compulsory buyout is completed at the end of November. France Telecom has the power to force the purchase of the remaining minorities once its stake in Orange passes 95%.
Once the buyout is completed, Orange will end its existence as a publicly quoted company and will be de-listed. However, France Telecom has made it clear that the London-based subsidiary will remain a separate company with its own board, management, corporate culture, brand, and operational procedures.
France Telecom acquired Orange in August 2001 from Vodafone Group Plc [VOD] for $37.7 billion. Vodafone had acquired Orange after purchasing German mobile operator Mannesmann AG [BMMG.F]. However, EC approval of that deal was subject to the divestment of Orange. Vodafone had originally planned to re-list Orange as a separate company.
Orange is a crucial part of France Telecom’s future, which has only just returned to financial health. France Telecom reported a net profit of $2.74bn (E2.5 billion) for the first half of the year, compared to a loss of $13.3 billion (E12.2 billion) a year ago, on revenue down 1.7% at $25 billion (E22.85 billion) from $24.6 billion (E22.47 billion) for the same period in 2002.
This is a far cry from last year, when it was on the brink of collapse, after a spending spree left it facing a huge debt pile of $78.17 billion (E68 billion). However, new management, a highly controversial cash injection of $10.3 billion (E9 billion) by the French government, and a restructuring program, have helped put France Telecom on the road to recovery. Net debt fell to $54 billion (E49.3 billion) at the end of June, down by $20.5 billion (E18.7 billion) since the end of December.
France Telecom’s bid will see the French government’s stake fall from 58.9% to 54% on a non-diluted basis, and just above 50% on a fully diluted basis.
By law, the French government’s stake must remain above 50%, but by the end of the year it hopes to pass a law that will allow it to reduce its stake to below 50%. The reason for the change in the law is to allow the French government to proceed with a privatization program to help restore the health of French public finances.
This article was based on material originally published by ComputerWire.
