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France Telecom to Acquire Orange

Wireless: Deal clears the way for Vodafone to expand its role as world's largest mobile phone firm.


LONDON — France Telecom has agreed to pay Vodafone AirTouch $37.6 billion for Orange, a top British wireless company, clearing the way for Vodafone to expand its position as the world's biggest mobile phone concern with the purchase of Germany's Mannesmann.

The widely expected deal, announced Tuesday, should satisfy regulatory concerns that Vodafone, itself a wireless provider in Britain, would gain too much influence in that market through the acquisition of Mannesmann, which is the parent company of Orange.

But the sale also will give Vodafone money to offset the huge costs of the $180-billion Mannesmann deal and provide crucial capital with which to bid for mobile licenses later this year in countries such as Germany, Italy and Japan.

"This transaction gives them cash and very liquid shares for an asset they were going to have to get rid of anyway," said Jim McAferty, an analyst at SG Securities in London.

The agreement would transform France Telecom from a national telephone monopoly into Europe's No. 2 wireless operator. And Orange would get to keep the management team that has made it the fastest-growing mobile business in Britain.

In buying Orange, France Telecom would strengthen its regional base in preparation for expansion farther afield.

Orange would give France Telecom a foothold in Britain's mobile phone market. With 27 million customers, that market is on par with Germany as the second-largest in Europe after Italy. France Telecom also would benefit from Orange's license to offer next-generation wireless services in Britain. The licenses will enable mobile handsets to browse the Internet.

As part of the arrangement, France Telecom would fold its own mobile operations into Orange, and Orange Chief Executive Hans Snook would stay on as head of the new company, which will use the Orange name.

The deal requires approval from European Union regulators and France Telecom shareholders. The company's majority shareholder, the French government, has already signaled its approval.

Under the deal, France Telecom would pay about $20.7 billion in cash and give Vodafone 129.2 million shares of France Telecom, currently worth about $16.9 billion.

France Telecom has committed to buy back the stock over two years, using funds it plans to raise through a limited initial public offering of shares in Orange.

After the deal was announced, France Telecom shares jumped 3% in heavy trading, while Vodafone shares rose 7%, further bolstered by the release of the company's latest financial results.

Vodafone also said its operating profit rose 32% to about $4.1 billion in its fiscal year ended March 31, from the previous year, as pro forma revenue jumped 37% to about $18.9 billion.

Vodafone's American depositary receipts gained $4.44 to close at $45.44 on the New York Stock Exchange.

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