France will sell part of Telecom $12.5 billion deal would be one of the biggest IPOs ever


September 09, 1997|By BLOOMBERG NEWS

PARIS -- The French government said yesterday that it will sell up to 38 percent of France Telecom SA for about $12.5 billion, in one of the world's biggest-ever initial public offerings.

One-fifth of Europe's second-biggest phone company will be sold on the stock market and up to 13 percent will be swapped with other companies, including a 7.5 percent stake with European leader Deutsche Telekom AG, its main international partner. Employees will be able to buy between 3.5 percent and 4.5 percent.

The proceeds from the sale will help the government meet the borrowing limits to qualify for the European Union currency. The sale will also aid France Telecom in its international expansion, allow it to raise more capital on the stock market to finance new projects and swap shares with partners just as its home market is opened to competition.

"The government wants to give it the means to keep its world ranking or even improve it," Dominique Strauss-Kahn, France's finance minister, said at a press conference announcing the sale.

Investors can start subscribing to shares from Sept. 22 and offers must be confirmed from Oct. 6, the day the price is to be set. Shares will start trading on the Paris and New York stock markets from Oct. 20. Some time after that date the company is likely to increase its capital by between 5 percent and 6 percent by selling more shares. The proceeds from that sale will help the company finance the share swap with Deutsche Telekom, which is worth more than the French company.

"This certainly frees them up to negotiate international alliances and cement the alliance with Deutsche Telekom," said Helen Pickance, an analyst with market researcher Dataquest.

If the sale did fetch $12.5 billion, it would rank among the world's biggest initial public offerings behind the $13.3 billion sale of Deutsche Telekom last November and ahead of the U.K. government's 1987 sale of $12.4 billion of British Petroleum PLC stock. It would be the biggest in French history, exceeding oil company Elf Aquitaine SA's IPO in 1994, when the government raised 35.7 billion francs.

The European telecommunications sales come as phone companies strive to prepare for a deadline to open European Union markets to competition from Jan. 1, 1998.

Gaining financial freedom is key to France Telecom's growth as France's $28 billion telecommunications market is opened. Although France Telecom is expected to remain the dominant telecommunications company in France for several years, it will depend more on revenue from abroad as it loses market share at home.

France Telecom and Deutsche Telekom each own 10 percent stakes in Sprint Corp. of the United States as part of their Global One alliance for international business services. They have said they plan to swap shares after both companies are publicly traded. Analysts said such a swap might be a prelude to a merger of the two companies, following British Telecommunications PLC's planned acquisition of its partner MCI Communications Corp.

Global One is in a battle with British Telecommunication's alliance with MCI and the international alliance of AT&T Corp. to win international customers.

France Telecom especially needs to reinforce its relationship with Deutsche Telekom, analysts said, after it lost in recent bids to form alliances in Spain and Italy. France Telecom failed to buy Spanish state-owned telecommunications company Retevision SA and was spurned by potential Italian partner Olivetti SpA Friday when it announced an agreement with Mannesmann AG of Germany.

Pub Date: 9/09/97

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