France Telecom, Europe's second-largest phone company, is targeting Germany after its decade-long partnership with Deutsche Telekom soured when Telekom chief executive Ron Sommer independently bid for Telecom Italia.
RWE and Veba, Germany's two biggest utilities, own 60.25 percent of the unprofitable venture. The price values E-Plus, Germany's third-largest mobile phone company, at $16.66 billion. France Telecom agreed earlier this month to buy Vodafone AirTouch's 17.24 percent stake in E-Plus for $1.86 billion.
"It's a clear signal to Deutsche Telekom that they will be taking them on in their home market," said Eric Burkel, an analyst with Handelsbanken Markets in Paris, who rates France Telecom shares "buy."
The move also helps Veba and RWE raise money for expansion abroad and allows them to cut costs as competition in the German electricity market stiffens after its deregulation last year. RWE will get $3.92 billion from the sale, while Veba will gain $4.14 billion.
RWE, which wants to have a 15 percent stake of the European electricity market by 2010, has earmarked $27.83 billion to expand abroad over the next decade. Veba, the country's biggest utility, is selling several of its non-energy assets as it merges with Viag to form Europe's No. 3 power company.
German law allows a company to hold only one mobile phone license. Viag already has a mobile phone venture, called Viag Interkom, with British Telecommunications and Norway's Telenor. Veba and Viag plan to focus on Viag Interkom.
The German market is booming--one in four are expected to have a mobile phone this year, compared with 17 percent in 1998.
Selling assets
France Telecom, which said it intends to move into conventional phone and Internet services, will finance the acquisition by selling non-key assets in the next two years. Those assets include the company's 10 percent stake in Sprint, which it values at $9.47 billion. The price is based on MCI WorldCom's $129 billion offer in stock and assumed debt for Sprint. The French company also expects to raise $2.5 billion from the sale of its 2 percent stake in Deutsche Telekom, Europe's biggest phone company.
The other E-Plus shareholders have a preemptive right to the Veba/RWE stake, the two utilities said. BellSouth, the No. 4 U.S. local phone company, holds 22.5 percent in E-Plus.
"As with the Vodafone stake, this purchase will take place at the beginning of 2000, assuming BellSouth waives its preemptive right," France Telecom said in a statement. France Telecom said it has not set dates for negotiations with BellSouth, although it has made contact.
E-Plus competitors
E-Plus has about 3.1 million customers and a market share of about 16 percent. In comparison, Mannesmann's mobile phone business counts 7.9 million customers and Deutsche Telekom's cellular service has 7.5 million customers. E-Plus, which has about 1,300 employees, sees sales more than doubling from last year's $1 billion.
The company will continue to be based in the Western German city of Dusseldorf.
The transaction still needs approval of the supervisory boards and the regulatory authorities, the two utilities said. The takeover will go into effect from July of this year.
Morgan Stanley Dean Witter advised RWE and Veba on the sale. Deutsche Bank advised France Telecom.
Copyright 1999, Bloomberg L.P. All Rights Reserved.
Play video
There are currently no comments for this post.