French groups to announce new strategies

The new heads of French companies France Telecom and Vivendi Universal are to unveil today at board meetings their strategies for reviving the two groups, both of which face mountains of debt.

Named to head France Telecom only last month, Thierry Breton has plunged into the firm's books and is expected to reveal his findings to the board after having briefed French Finance Minister Francis Mer several days ago.

The French state holds a 56.4-percent stake in the struggling telecoms operator.

For Jean-Rene Fourtou, at the helm of Vivendi Universal since Jean-Marie Messier was ousted in early July, Monday will also offer an occasion to update investors on the ailing media giant's strategy.

In particular, light should be shed on the fate of French telecoms operator Cegetel, in which VU has a 44-percent stake but which British giant Vodafone is eager to take over.

Unlike VU, which has tough choices to make about its activities in telecoms, media and utilities, France Telecom's case is simpler, according to a source familiar with the matter.

Breton's primary problem is how to ease France Telecom's massive debt load of 70 billion euros (US$68 billion).

"A huge recapitalization will be needed, but how? Breton doesn't have a plan yet," one banker said.

Breton also needs to quickly work out how to restore the group's profitability and dump non-strategic assets.

His problems include the German mobile operator MobilCom, in which France Telecom has a 28.5-percent stake and with which it has had a costly, ongoing and bitter dispute.

"Nothing is taboo, and in the most radical option, all of France Telecom's assets outside of its French network and its mobile phone subsidiary Orange can be sold", said the banker.

"But at the same time, these two assets produce the most debt," another banker said.

France Telecom "can decide to sell its Yellow Pages or even its Internet subsidiary Wanadoo. However, it would be crazy to undo Orange at the very moment the company is getting close to yielding something. On top of that, Breton would never get back what was paid [for Orange]," he said.

As for VU, most bankers believe it would be better for the company to keep Cegetel even if that meant sacrificing other units.

"The effort Cegetel and [its cash-rich mobile unit] SFR really deserve needs to be calculated and compared to the sacrifices that implies towards other assets," a banker said.

To hold onto Cegetel, Fourtou must get four to 5.5 billion euros together quickly in order to block a takeover offer from Vodafone, which already owns a 15-percent stake.

A source close to the matter said talks between VU and banks Credit Suisse First Boston, Credit Lyonnais, Credit Agricole Indosuez and Royal Bank of Scotland were going well. "An agreement is likely between now and Monday," the source said.