France Telecom seeks to sell Swiss business

PARIS Thu Jul 28, 2011 9:45am EDT

France Telecom logo is seen on a phone box in Nice, southern France, October 29, 2008. REUTERS/Eric Gaillard

France Telecom logo is seen on a phone box in Nice, southern France, October 29, 2008.

Credit: Reuters/Eric Gaillard

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PARIS (Reuters) - France Telecom FTE.PA is putting its Swiss, Austrian and Portuguese units up for sale, which analysts say could raise as much as 2 billion euros ($2.9 billion) and pave the way for a return to shareholders.

The announcement came as Europe's fourth largest telecoms operator by market capitalization announced second-quarter results just short of analysts' forecasts but stuck to its full-year targets.

The potential asset disposals are part of a broader portfolio review launched by Chief Executive Stephane Richard earlier this year.

Amid sluggish growth in mature European markets, Richard is seeking to improve profitability by pulling out of countries where the company is not among the top two players or in businesses where it does not have operational control.

"No talks have yet begun on Switzerland; the process is starting today," said Chief Financial Officer Gervais Pellissier. "We are working with the other shareholders in Austria and Portugal to find ways to alter our stakes there."

The company saw quarterly revenue on a comparable basis slip 1.3 percent to 11.34 billion euros ($16.47 billion) as competition intensifies in France ahead of the entry of rival Iliad (ILD.PA) to the mobile market.

France Telecom and its rivals -- Vivendi's SFR (VIV.PA) and Bouygues Telecom (BOUY.PA) -- have been cutting prices and spending more on marketing ahead of Iliad's launch to try to lock in customers under 12- and 24-month contracts.

Earnings before interest, taxes, depreciation and amortization (EBITDA) on a comparable basis fell 5.9 percent to 3.88 billion euros.

Analysts were expecting second-quarter revenue of 11.37 billion euros and EBITDA of 3.95 billion.

Iliad's presence is being felt even before its launch. France Telecom spent more on marketing, which cut 2 basis points off its EBITDA margin to 38.2 percent in the second quarter.

Richard also said the company would launch a low-cost mobile brand called Sosh this autumn, which will target smartphone users via an online sales model without fixed contracts. Bouygues Telecom recently launched a similar low-cost brand called B&YOU.

INDUSTRY CONSOLIDATION

In seeking to sell off underperforming businesses France Telecom is following similar moves by rivals. Vodafone (VOD.L) has sold minority stakes in businesses in China and Poland as well as in French operator SFR to Vivendi for 7.95 billion euros, while Deutsche Telekom (DTEGn.DE) is seeking to sell its U.S. arm of T-Mobile to AT&T for $39 billion.

With growth sluggish and network investment costs mounting, operators are focusing on the markets where they are strongest to benefit from economies of scale.

France Telecom is seeking to get out of Switzerland after the competition authorities last year blocked its plan to merge Orange Switzerland with Sunrise, the second-largest Swiss operator, to better compete with market leader Swisscom (SCMN.VX).

Orange Switzerland has 1.6 million clients and 17 percent market share. Analysts estimate the business could be worth around 1.5 billion euros.

Further changes to the company's footprint could be in the offing regarding its 20 percent stake in Portugal's Sonaecom (SNC.LS) and its 35 percent of Austrian mobile operator One.

Analysts say the Portugal and Austrian interests could be worth around 500 million euros.

"We already said we would not remain long-term shareholders in assets where we have minority stakes such as Austria and Portugal," Pellissier said.

France Telecom's shares have lagged peers since the beginning of the year, despite having one of the highest dividend yields of the telecom sector and promising 1.40 euros per share through 2015.

Its shares are down 8 percent since the beginning of the year compared with a 6 percent decline in the Stoxx 600 Europe telecoms sector index .SXKP.

The shares were up 0.8 percent at 14.35 euros at 1307 GMT, when the Stoxx 600 Europe telecoms sector index was up 0.5 percent.

($1=0.6884 euros)

(Editing by Greg Mahlich)

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