France Telecom and Vodafone to shake hands on Orange

France Telecom and Vodafone Airtouch are expected to announce today that they have reached agreement on the sale of Orange to the French group in a deal that would create Europe’s second largest mobile phone company.

France Telecom intends to pay about L31 billion for the UK’s third largest mobile operator.

The sale of Orange will allow Vodafone to close its purchase of Germany’s Mannesmann.

The French group, whose Itineris operation in France has 10 million subscribers, last year bought 15 percent of NTL, the UK cable company.

The group would combine Orange, which also has stakes in Belgian, Swiss and Austrian operators, with its mobile interests in France, Denmark, the Netherlands and several other European countries.

If the weekend’s negotiations are finalised, Hans Snook, chief executive of Orange, will run the combined business. France Telecom plans to spin off between 15 percent and 20 percent of the mobile unit at the beginning of next year, assuming market conditions are favourable.

The purchase price includes L25 billion of equity, for which France Telecom could pay slightly more cash than shares. France Telecom will assume about L2bn of Orange’s debt, plus an additional L4.1 billion of debt Orange has raised to pay for a third-generation mobile licence in the UK.

This licence is one reason France Telecom is attracted to Orange. The French company is also eager to expand outside France after it failed to buy Germany’s E-plus.

France Telecom began a close examination of Orange’s business and finances late last week. Over the weekend it discussed acquisition details with Vodafone and held separate talks about the future of Orange’s management.

Vodafone, the world’s largest mobile phone company, is eager to get as much cash as possible to help pay for the third generation licences being auctioned throughout Europe.

France Telecom will make the purchase with a L20 billion loan secured from a consortium of banks led by Citibank.

The talks could still break down but the companies expect to announce a deal on Tuesday when Vodafone publishes its results.

France Telecom, by quickly raising money through the loan and through a planned sale of some of its stake in Teléfonos de Mexico in a public offering next month, was able to offer more cash than competitors and entered exclusive negotiations with Vodafone last week.

The Teléfonos de Mexico sale could raise about $1.9 billion (L1.3 billion)

Other telephone companies, including Royal KPN of the Netherlands and Finland’s Sonera, expressed an interest in buying Orange, but got no further. Reuters