France Telecom to Sell Swiss Unit to Apax for $2.1 Billion

December 27, 2011, 2:18 AM EST By Matthew Campbell and Aaron Kirchfeld

(Updates with operations in fourth paragraph.)

Dec. 24 (Bloomberg) -- France Telecom SA agreed to sell its Orange Switzerland mobile-phone unit to buyout firm Apax Partners LLP for 1.6 billion euros ($2.1 billion), the first major step in Chief Executive Officer Stephane Richard’s plan to unload slow-growing European operations.

The deal, which is subject to approval by Swiss authorities, will be submitted to France Telecom’s board in the week starting Jan. 9, the company said in a statement today. London-based Apax beat rivals including EQT Partners AB, Providence Equity Partners Inc. and French telecommunications billionaire Xavier Niel, people with knowledge of the transaction said yesterday.

France Telecom is shedding assets in Europe, where phone companies are vying for a shrinking pool of new customers amid tightening regulation, to embrace faster-growing markets in Africa and the Middle East. France’s largest mobile operator is also in talks to sell its Orange Austria unit to Hong Kong-based Hutchison Whampoa Ltd., people familiar with the situation said in October, and is planning to exit Portugal.

“It makes sense to exit the difficult Swiss market and may give them more flexibility on the cash-flow side,” said Giovanni Montalti, a London-based analyst at Credit Agricole Cheuvreux. The deal will leave France Telecom with European operations in countries including Spain, Poland, and the U.K., along with its home market, while its emerging-market footprint includes Kenya, Cameroon, and Tunisia.

Perella Weinberg Partners LP and Lazard Ltd. advised France Telecom on the Swiss sale. EQT and Providence couldn’t immediately be reached for comment.

Apax Deals

Apax has participated in more than 20 deals this year, including last month’s $6.5 billion buyout of U.S. wound- treatment company Kinetic Concepts Inc., its largest in 2011, according to Bloomberg data. The firm has amassed about half the 9 billion euros it’s seeking for its latest fund, three people with knowledge of the plans said this month.

France Telecom’s decision to exit Switzerland follows an attempt to merge its operations there with rival Sunrise that was rejected by competition regulators last year. Sunrise’s owner, London-based CVC Capital Partners, was excluded from the Orange Switzerland sale process, although the firm discussed assisting Providence with arranging financing in the hopes of attempting another merger, people with knowledge of the talks have said.

A combination of Orange Switzerland with Sunrise would leave the country of about 8 million residents with just two mobile operators: the merged entity and Swisscom AG, the former Swiss phone monopoly. By comparison, the U.K., Germany and Italy all have four full-service mobile-network providers.

Orange Suisse

Today’s deal values Orange Switzerland, which had revenue of 1.3 billion Swiss francs ($1.39 billion) last year, at 6.5 times its estimated 2011 earnings before interest, taxes, depreciation and amortization, according to France Telecom. That compares with a median Ebitda multiple of 5.6 paid for Western European telecommunications assets in the last 3 years, Bloomberg data show.

Europe’s mobile operators are struggling to find avenues for growth as mobile penetration reaches its maximum and economic uncertainty crimps consumer spending. Telefonica SA this month cut its dividend for the first time in a decade, citing worsening market conditions, while France Telecom reported a 6 percent decline in third-quarter profit as a revenue decline at home overshadowed stronger performances in Africa.

Protect Dividend

The French company’s shares have fallen 23 percent this year, outpacing a 15 percent decline in the Bloomberg Europe Telecommunications Index, valuing it at about 32 billion euros. Still, in October France Telecom raised its outlook for operating cash flow this year, and has pledged to protect its dividend.

Almost half the mobile operator’s 45.5 billion euros in sales last year came from France. In October, France Telecom agreed to acquire Congolese mobile operator Congo-China Telecom, entering its third new country in about a year after earlier deals in Morocco and Iraq.

--With assistance from Jacqueline Simmons in Paris. Editors: Elizabeth Wollman, Simon Thiel

To contact the reporters on this story: Matthew Campbell in Paris at mcampbell39@bloomberg.net; Aaron Kirchfeld in Frankfurt at akirchfeld@bloomberg.net

To contact the editor responsible for this story: Jacqueline Simmons at jackiem@bloomberg.net

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France Telecom Loses EU Court Appeal Over $1.37 Billion Aid

December 08, 2011, 7:53 AM EST By Stephanie Bodoni

(Updates with shares in fifth paragraph.)

Dec. 8 (Bloomberg) -- France Telecom SA, France’s largest phone company, lost an appeal at the European Union’s highest court against an EU order that forced it to pay about 1.02 billion euros ($1.37 billion) in back taxes to the French government.

The EU regulator’s “decision finding that that aid existed and ordering its recovery is valid,” the EU Court of Justice in Luxembourg said in a ruling today. It upheld a lower EU court’s ruling in 2009 “that the special tax regime to which France Telecom was subject constituted state aid.”

The European Commission, which checks whether government aid distorts competition, had probed France’s support for the phone company when it was close to bankruptcy in 2002. It decided that France Telecom received improper tax benefits from 1994 through 2004. A lower EU court in 2009 sided with the regulator.

The Brussels-based commission won a separate case at the EU high court in 2007 over France’s failure to recoup the tax breaks. The court in that case rejected France’s arguments that the commission should have given a more precise figure when it ruled in 2004 that France Telecom must pay back as much as 1.1 billion euros, plus interest.

France Telecom fell as much as 0.9 percent and traded at 12.54 euros in Paris trading at 1:26 p.m.

‘No Financial Consequences’

“We take note of the decision, which has no financial consequences for the group because the full amount was paid to the French state at the beginning of 2010,” Sebastien Audra, a Paris-based spokesman for France Telecom, said by phone today.

The commission’s probe focused on the French state’s role in supporting France Telecom at the end of 2002. When the commission started investigating whether the promise of loans to France Telecom constituted state aid, it also opened a probe into whether the company benefited from unfair tax breaks.

The tax system dates back to a French law from 1990 when the company, which was formerly part of a government department, was set up.

Mario Monti, EU antitrust commissioner at the time, said in 2004 that the estimate of 800 million euros to 1.1 billion euros in back taxes will probably rise to between 1.2 billion euros and 1.7 billion euros once interest is added.

The case is: C-81/10 P, France Telecom v. European Commission.

--Editors: Peter Chapman, Jones Hayden

To contact the reporter on this story: Stephanie Bodoni in Luxembourg at sbodoni@bloomberg.net

To contact the editor responsible for this story: Anthony Aarons at aaarons@bloomberg.net

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