France Telecom yesterday unveiled its long-awaited rescue package, designed to slash up to €30bn (£19bn) from its €70bn debt mountain, as it parted company with a number of senior executives including its finance director, Jean-Louis Vinciguerra.
The turnaround plan, dubbed "FT 2005", will see France Telecom launch a €15bn rights issue to cut debt while a further €15bn debt reduction will come from operational improvements and cost-cutting.
As expected, the French government, which owns 55.5 per cent of France Telecom, confirmed it would support the planned rights issue with an immediate €9bn loan, which will convert into shares when the company sells stock to investors. The European Commission has yet to rule, however, on whether that violates EU rules on state aid.
Thierry Breton, who has been working on the refinancing since his appointment as chairman and chief executive in early October, said: "With FT 2005, France Telecom gives itself the means to bring about its own recovery and regain control over its future. This marks a change from September, when the sole possibility appeared to be refinancing under the worst possible conditions."
He said the company would also look at selling assets with "weak strategic and financial positions" or where it could not gain majority control and does not expect to pay a dividend next year.
As part of the measures to fix the company's balance sheet, France Telecom also unveiled plans to refinance €15bn of its existing debt. It has to make €50bn of debt repayments by the end of 2005 including a €15.2bn payment next year, another €15bn in 2003 with €20bn due in 2005.
Frank Dangeard, M. Breton's former number two at Thomson Multimedia, will spearhead the company's restructuring while Michel Combes will replace M. Vinciguerra as finance director.
Nicolas Dufourcq, the chief executive of the company's Wanadoo internet division, also announced plans to resign next month while Jean-François Pontal, head of the mobile operator Orange will retire next year.
Shares in the company closed up 16.5 per cent at €18.90. The package of measures will cost it between €800m and €1bn between now and 2005 of which "a significant proportion" is attributable to Orange.
The company, which expects about 20,000 staff to leave over the next three years through retirement and natural attrition, also instigated a hiring freeze until June of next year.
The restructuring, however, got a lukewarm reception from some City analysts, with many questioning whether the targets were too ambitious and whether the government loan would get EU approval. "The FT statement is short on many details and has some challenging targets," analysts at Nomura said.
France Telecom also confirmed yesterday it expected an 8 to 9 per cent rise in revenues this year while underlying, or Ebitda, profits are expected to total about€14.5bn. Its full-year results, it said, would be affected by asset write-downs to the tune of €5.5bn and €7bn, mainly relating to its Equant business. M. Breton said that would take its net losses to about€18bn to €20bn.
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