UPDATE 2-France Tel board backs CEO despite fraud case

Mon Jun 17, 2013 12:25pm EDT

(Releads with board deciding Richard stays on)

By Leila Abboud and Alexandre Boksenbaum-Granier

PARIS, June 17 (Reuters) - France Telecom's executive board agreed on Monday to keep chief executive Stephane Richard in his job after he was put under investigation for fraud allegedly committed during his time as a top government aide.

The board said after an emergency meeting in Paris to decide his future that it had "full confidence" in Richard to pursue his leadership of the 27 percent state-owned group, which also goes by the Orange brand.

"The Board considers that the legal measures affecting Stephane Richard do not impede his ability to fully and effectively lead Orange as its Chairman and Chief Executive Officer," the board said in a statement.

Richard was a top aide in the finance ministry under former president Nicolas Sarkozy when his government in 2008 awarded tycoon Bernard Tapie 285 million euros ($373 million) in damages in a legal dispute with defunct bank Credit Lyonnais.

His future at France Telecom has been in doubt since magistrates last week opened a formal investigation into his role in the award. Richard denied wrongdoing and is appealing against the decision to put him under investigation.

The company's shares closed 3.08 percent on the day, making it the biggest gainer on France's blue-chip CAC 40 index , with investors relieved that Europe's fourth-biggest telecom group by sales would not face a leadership vacuum.

"If Richard had been forced out, the group could have suffered during the transition phase to a new boss," said a Paris-based trader who declined to be named.

Richard, 51, is a product of one of France's elite "grandes ecoles". His contract is up in May 2014, so it still remains to be seen whether the investigation will affect his chances of being retained for a second term as CEO.

France Telecom has seen business in its key home market get slammed by an 18-month old price war sparked by the arrival of low-cost mobile competitor Iliad.

The board said it had appointed an independent board member to follow the situation.

In French law a formal investigation means there is "serious or consistent evidence" pointing to likely implication of a suspect in a crime. It is one step closer to a trial, but some such investigations have been dropped without going to court.

The result of the executive board meeting was largely expected after President Francois Hollande said on Sunday that Richard would stay as long as the investigation did not impede his ability to do his job.

In the M6 TV interview on Sunday, Hollande also ruled out the government selling down its stake in France Telecom because current valuations were too low to make such a sale interesting.

France Telecom shares were the third-worst performing telecom stock in Europe in the past 12 months, largely because of the erosion of mobile profitability it its home market. (Additional reporting by Ingrid Melander; Editing by David Holmes and Mark John)

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