France Télécom SA (FT) wants to buy back the 13.72 per cent of its mobile telecommunication subsidiary, Orange SA, that it doesn't own. On Monday, it made an all-stock offer for the outstanding shares, at a premium of about 20 per cent over the market price.
The move would allow France Télécom to better integrate the offerings of the two companies, FT Chairman and chief executive officer, Thierry Breton, said.
"My strategic vision for France Télécom is of a more and more integrated group that knows how to make the most of cooperation between its activities," he said.
Since FT sold part of Orange to independent shareholders in 2001, the companies' situations had changed in several ways, Breton said. The mobile telecommunication industry had matured, and FT and Orange now had similar financial characteristics, making them a better fit, he said.
One of the motives for floating Orange was to allow it to acquire other companies in all-stock transactions, something that was impossible for FT, as a significant acquisition would dilute the French government's holding below the 50 per cent required by law, he said.
However, the French government indicated in July that it would soon remove the rule requiring that the state hold a majority of the company, Breton said.
France Télécom offered to exchange 11 of its shares for each block of 25 Orange shares.
Last Sunday, the friendly offer received the unanimous support of Orange's board, according to a joint statement from the two companies. The offer will be open from September 12 to October 7, and if at the end of that period France Télécom held more than 95 per cent of Orange's shares, it might move to forcibly buy back any outstanding shares, it said.
It currently holds 86.28 percent.
The move only concerned Orange, Breton said, and not FT's Internet service provider subsidiary, Wanadoo.
The same business logic did not hold there, he said, because Wanadoo's ratio of price to earnings was still around four times that of France Télécom: there was not the same financial similarity as with Orange.