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France Telecom Gets Private-Equity Interest for U.K. Unit

France Telecom SA Chief Executive Officer Stephane Richard. Photographer: Balint Porneczi/Bloomberg
France Telecom SA Chief Executive Officer Stephane Richard. Photographer: Balint Porneczi/Bloomberg

Nov. 16 (Bloomberg) -- France Telecom SA has received interest from private-equity firms seeking a minority stake in its 50-50 U.K. venture with Deutsche Telekom AG, Chief Executive Officer Stephane Richard said.

The largest French phone company hasn’t made a decision on the future of the business, recently renamed EE, and could instead go for an initial public offering of its shares, Richard said yesterday in an interview at an industry conference in Montpellier, France.

“We want to keep control of the asset, and so do the Germans,” Richard said. “That said, there is a possibility that we can give ourselves some financial headroom by opening EE’s capital to a minority shareholder or through an IPO, but we haven’t yet decided.”

France Telecom jumped as much as 2.4 percent from its intraday level yesterday after Richard’s comments. A stake sale in the unit would help France Telecom bolster its finances as intensifying rivalry at home and Europe’s slowing economy hurt earnings. Its debt rating was lowered for the first time in a decade last month and the carrier cut its dividend to keep borrowings under control.

EE may be valued at 7 billion pounds ($11 billion) to 7.7 billion pounds, based on a multiple of 5 to 5.5 times its earnings before interest, taxes, depreciation and amortization, according to Stephane Beyazian, an analyst at Raymond James Euro Equities.

Four Operators

France Telecom, based in Paris, declined 2.7 percent to 8 euros today in Paris. Deutsche Telekom fell 2.3 percent to 8.16 euros on the Frankfurt exchange.

The CEO said “many” private-equity funds have expressed interest in buying part of the asset, without disclosing names. France Telecom and Deutsche Telekom created Everything Everywhere in 2010 to save more than 4 billion euros in network, marketing and administrative costs by 2014. That deal cut the number of U.K. network operators to four from five.

An IPO would be possible in two years, France Telecom Chief Financial Officer Gervais Pellissier said in a separate interview yesterday in Barcelona at a conference organized by Morgan Stanley.

“There are no plans today, it’s for the future,” Pellissier said. “We are not like Telefonica that needed to do the O2 IPO because it needed cash. O2 Germany had proved already a track record for several years, which is not the case yet at EE. We don’t need cash right now, we need to prove that this is a nice asset.”

Rating Cut

Telefonica Deutschland Holding AG, the German unit of Spain’s largest phone company that sells service under the O2 brand, started trading last month after completing Europe’s biggest initial public offering this year.

Fitch Ratings lowered France Telecom’s rating last month by one level to BBB+, the third-lowest investment grade. Standard & Poor’s and Moody’s Investors Service rate the company one level higher.

On Oct. 25, France Telecom reduced its planned dividend for a second time this year after third-quarter earnings and sales declined, in a bid to keep debt under control and avoid credit-rating cuts. The move followed similar dividend reductions by European peers such as Telefonica SA.

“We don’t need cash today so there is no set deadline to decide on EE,” Richard said. “We won’t need to arbitrate between assets to solve any cash problems for years to come.”

France Telecom had net debt of 31.2 billion euros at the end of the first half, according to a company document. Telefonica, with net debt of 52.8 billion euros, is Europe’s most indebted telephone company.

EE, which became the largest U.K. mobile-phone operator after its creation, competes with Vodafone Group Plc and Telefonica as the country’s wireless carriers prepare to start offering faster fourth-generation services.

To contact the reporters on this story: Marie Mawad in Montpellier, France at; Manuel Baigorri in Barcelona at

To contact the editor responsible for this story: Kenneth Wong at

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