One of the world’s most indebted telecom operators, France Telecom SA, last week launched a 3bn euro ($3.7bn) rights issue to help fund its acquisition of Spain’s third-largest mobile operator, Amena Movil.
In July, France Telecom said it would purchase the Amena unit from Spain’s second largest telecoms group Auna Telecomunicaciones SA. The deal was worth 10.6bn euros ($12.9bn), of which 6.4bn euros would be cash ($7.77bn) and the rest paper. The takeover will make France Telecom’s mobile unit, Orange SA, the second largest mobile operator in Europe, after it absorbs Amena’s 9.7 million customers.
France Telecom said it will offer 133.44 million new shares at 22.63 euros ($28.33) a share. The move is Europe’s largest rights issue so far this year, and comes after the French government reduced its holding in the carrier in early June to just 34.9%.
At that time the French state had been hoping to sell between 6% and 8% of the carrier in order to raise 3.5bn euros ($4.30bn) to 4.53bn euros ($5.56bn) for the state coffers.
In the end however, poor demand for the stock meant it was only able to sell a little over 6%, which raised only 3.4bn euros ($4.19bn). Indeed, demand was so weak for the shares that the banks underwriting the offer were reportedly left holding an unspecified number of shares that had to be sold at a later date.
Now with the new rights issue, the French government is expected to see its 34.9% stake fall to just 30.9%, according to a report in the French newspaper Les Echos. The move also means the French government will no longer be able to influence decisions made by the carrier because the French state’s representation on the board will also be reduced.
Meanwhile, France Telecom pledged not to issue any more shares for approximately six months after September 26 when the present increase will be delivered. It is reported that the France government is also subject to a lock-up clause preventing it from selling its shares until March 6, 2006.
It will be interesting to see how much enthusiasm the market will have for the current offering, especially as analysts are worried that France Telecom is once again back on the acquisition trail. The markets have remained wary of France Telecom, especially after its chief executive Didier Lombard pledged in July to continue the carrier’s policy of debt-reduction, but also said he would look at a selective acquisition strategy.
It is in talks to acquire a 3.8% stake held by the Polish government in the dominant Polish operator TPSA, which would give France Telecom a majority holding in Eastern Europe’s largest telecoms operator. In addition, the French carrier is also interested in increasing its stake in Jordan Telecom.
France Telecom built up massive debts as a result of a reckless expansion strategy in the late 1990s, and debt peaked at 68bn euros ($87.87bn) in 2002. This led to questions over the carrier’s viability, and it took a state aid package from the French government, plus a change of management and massive job cuts to get the carrier back on its feet.
At the end of June, net debt fell to 46.3bn euros ($56.22bn) from 49.8bn ($60.47bn) at the end of 2004.