Legal threat to France Telecom's Orange buyout

A 66-year-old French grandmother could delay France Telecom's buyout of Orange minority shareholders by as much as a year as she takes French stock market regulators to court over their handling of the matter.

Colette Neuville is president of Adam (Association pour la Defense des Actionnaires Minoritaires), an organisation championing the rights of small shareholders, which she runs out of the French cathedral city of Chartres. Adam is unhappy with the way French regulators have dealt with France Telecom's €9.5 a share buyout, which it launched last September. At the last count, in mid-October, France Telecom had won control of 98.78 per cent of the mobile phone group with 1.22 per cent of Orange shareholders yet to subscribe for the offer.

Mme Neuville clams to speak for a proportion of this 1.22 per cent, most of which are believed to be in the hands of private shareholders. Her opposition to the deal seems to be mainly about price, which she hopes to improve for those Orange shareholders who have not yet sold out.

France Telecom is keen to gain full control of the cash generative mobile phone group to help it pay down its huge debt pile. The 98.78 per cent shareholding already accumulated should in theory allow France Telecom to do what it likes with Orange's cash flow, but the French telecoms goliath will have to wait until after a decision by the French courts before it can complete a compulsory buyout of outstanding shares. The delay affects hundreds of UK-based shareholders who failed to participate in the tender offer on the grounds that the promised compulsory purchase of shares appeared to offer an expense-free way of securing the cash.

Mme Neuville has in the past crossed swords with some of France's most powerful names. Her most successful campaign was her attack on the terms of an agreed bid by French electrical goods maker Schneider Electric for its local rival Legrand in 2001.

As with Orange, the deal had been approved by the French market regulator, the Conseil des Marches Financiers (CMF). However Mme Neuville successfully interrupted the procedure. Claiming that some of Legrand's minority shareholders were being offered an unreasonably lower price she took the case to the Court of Appeal and won, forcing Schneider Electric to increase its buyout offer.

Her chances of winning a similar victory with Orange appear slim. Mme Neuville's case seems to be based on the assersion that the €9.50 a share in cash now on offer is less than the value of France Telecom's all-shares bid at the time it was originally made, and in any case undervalues the company. However, since then, the value of the shares bid has slipped to less than €9.50, which is itself the same price Orange was sold at in an IPO two years ago.

Mme Neuville alleges that the buyout terms breach pledges made in the original IPO prospectus.

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