* Stephane Richard under investigation in Tapie probe
* Minister says board to meet in coming days
* Investors calm about potential management change
* Tapie defends meeting at presidential palace
By Leila Abboud and Alexandre Boksenbaum-Granier
PARIS, June 13 The future of France Telecom
Chief Executive Stephane Richard remained in question
on Thursday, after he was put under investigation for conspiracy
to commit fraud during his time as a top government aide.
The board of Europe's fourth-largest telecom group, which is
27 percent owned by the state, is set to meet in coming days to
discuss Richard's fate.
The views of the Socialist government led by President
Francois Hollande will likely determine the outcome, even though
the state only holds three of 15 board seats, according to three
sources familiar with the company's governance.
With the core of its 170,000 employees being former civil
servants, France Telecom remains strongly influenced by the
state. The group is expected to make network investments in the
country's interests, layoffs are taboo because of strong unions,
and investors have long known that shareholders' interests are
not always the priority.
Digital Economy Minister Fleur Pellerin said the government
must decide "whether the judge's decision (to put him under
investigation) poses a problem for Stephane Richard to stay on,"
adding that talks with its three board members were ongoing.
"The issue is not his performance at the company to date,"
Pellerin said in a radio interview. "It is whether the decision
has weakened him."
Richard worked for former finance minister Christine Lagarde
in 2008 when the government awarded tycoon Bernard Tapie 285
million euros ($373 million) in damages in his long battle with
defunct bank Credit Lyonnais.
Tapie, a supporter of former President Nicolas Sarkozy, had
contested the bank's role in the 1993 sale of his stake in
sports firm Adidas.
Investigating judges are examining allegations that Tapie
got favourable treatment because of his political ties when the
government decided to take the case to arbitration instead of
The investigators are focusing on a meeting in July 2007 at
the presidential palace between Tapie, Richard and two top
officials in the Sarkozy government to determine if political
pressure was behind the choice.
Tapie told Reuters in an interview on Thursday that the
meeting between opposing sides was legitimate. "A decision like
the one to go to arbitration cannot be made without all coming
to agreement," said Tapie.
The current government also said on Thursday it would call
for a review of the arbitration ruling itself - a move that
could result in the eventual recovery of some of Tapie's payout.
For his part, Richard has denied any wrongdoing and plans to
appeal the decision to put him under official investigation.
Under French law, this step means there exists "serious or
consistent evidence" pointing to probable implication of a
suspect in a crime. It is one step closer to a trial, but a
number of such investigations have been dropped without trial.
Investors have so far taken Richard's travails in their
stride because they don't think the main issue affecting
performance - namely a gruelling price war in the group's key
domestic market - will be much affected by a change in
France Telecom shares closed down 0.3 percent at 7.44 euros.
The group, which also operates under the Orange brand, has
seen its shares slump 24 percent in the past year, the
third-worst performing telecom stock in Europe, because of tough
competition sparked by low-cost mobile rival Iliad.
"I'm worried about the future of Orange, but not because the
CEO is under investigation," said Christian Jimenez, who runs
Diamant Bleu Gestion, whose funds hold France Telecom shares.
"It's getting harder and harder for Orange to profit from
the major investments it makes in its networks."
Analysts are forecasting a roughly 15 percent drop in
operating profit this year, largely because of competition in
Renaud Murail, a fund manager at Barclays Bourse, said Chief
Financial Officer Gervais Pellissier could serve as a temporary
boss if Richard is forced to leave.
"Richard is surrounded by a team at Orange, so not
everything depends on him, which is why the share reaction has
been minimal," said Murail.
"The real issue facing the company today is improving
margins in the move to superfast 4G mobile services and not so
much a change in top management."
France Telecom, along with rivals Vivendi SFR and
Bouygues Telecom, is rushing to build 4G networks in
France and has already launched such services in Britain.
France Telecom declined to comment.