F. Tel to sell ST stake

December 10, 2001 Posted: 1300 GMT

LONDON (CNN) -- France Telecom plans to sell shares and bonds worth up to $2.8 billion in STMicroelectronics to reduce debts.

France Telecom, the country's dominant phone company, like its European rival is under pressure to slash debts accumulated betting on high speed wireless services and acquisitions.

The Paris-based company spent more than $50 billion on acquiring wireless unit Orange, data network operator Equant and Internet service provider Freeserve. It is now straining with debts of more than 65 billion ($73 billion) said first-half profit dropped 49 percent as interest costs soared.

France Telecom is striving to prune back its debt to between 37 billion and 47 billion by 2003.

The French phone operator and Italian engineering company Finmeccanica --- main shareholders in STMicroelectronics, Europe's biggest chip maker – are selling about 70 million shares, or 7 percent of their stake, by way of a share sale to financial institutions and bonds exchangeable for ST's stock.

The bond issue is valued at between 1.1 billion and 1.5 billion with which can be exchanged for 22 million to 26 million shares in Franco-Italian ST after January 2, 2004.

France Telecom said the deal would net a capital gain of about 1.1 billion and enable it to cut its 65 billion debt mountain by 3 billion.

France Telecom Finance Director Jean-Louis Vinciguerra told a conference call that the group plans to sell its remaining 25 million ST shares in six months. He said the company expects to raise 4 billion from the sale of all of its ST holdings.

"We are selling around 70 million shares today and expect to sell a further 25 million in six months time," Vinciguerra said. "Today's operation is worth between 2.8 billion and 3.2 billion. The 25 million are worth a billion. So we are looking at raising a probable total of 4 billion.

"This is very satisfactory. Our debt-cutting programme is on track, and even some way in advance," he told a conference call.

ST's stock 5.3 percent to 37.46 in midday Paris trading on Monday, while France Telecom dipped 2.7 percent 46.47. Finmeccanica's stock dropped 4.3 percent to 1 in Milan.

Italy's Finmeccanica plans to use the proceeds it raises from the sale of its shares in ST to fund growth in its aerospace and defence business.