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France Telecom looks ahead to Orange purchase with stock sale

France Telecom, which has been struggling to bolster its flagging finances, will issue stock to raise fresh capital that it will use to acquire the 13.7 percent stake of the cellphone provider Orange that it does not yet own, in a deal worth as much as US$7.6 billion.

In an announcement on Monday, France Telecom said it would offer shareholders in Orange, which France Telecom floated on the stock market two years ago, 11 France Telecom shares for every 25 Orange shares they hold. Analysts said the exchange valued the stake at as much as 7 billion euros.

France Telecom posted one of the largest losses in French corporate history last year, and is struggling to reduce almost 50 billion euros of debt.

Thierry Breton, who took over last year as chairman, said that Orange would profit "from its belonging to a wider company."

His strategy, he told a news conference, was to make of France Telecom an "integrated group, not a pure player."

Under the deal announced on Monday, France Telecom said it would sell shares in France Telecom equal to 10 percent of its current capital to finance the all-share deal and would unite its fixed-line and wireless phone businesses into one company.

It said the deal would afford it access to Orange's generous cash flow and enable France Telecom to resume a dividend payment as early as next year.

The offer, which begins Sept. 12 and closes Oct. 7, represents a premium of more than 17 percent on the Friday closing price for Orange shares.

The steps on Monday reflect efforts throughout the industry to rely more heavily on wireless phone services to pay back the huge debt telecommunications companies amassed acquiring competitors and buying licenses for new services in the 1990s.

It also appeared to confirm a modest revival of interest in deal making in an industry that had been stagnant since the stock market downturn.

In August, Deutsche Telekom offered to pay 1 billion euros (US$1.1 billion) to acquire the 51 percent stake in Poland's largest cellphone provider, Polska Telefonia Cyfrowa, that it does not own from Vivendi Universal.

Investors were pleased with France Telecom's move. Shares of Orange soared 15 percent, to 9.75 euros, before falling back later in the day to 9.47; shares in France Telecom closed down almost 4 percent, at 21.72 euros.
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