France Telecom buys Orange stake

Embattled Chief Executive Michel Bon

PARIS, France (CNN) -- France Telecom has bought 103 million shares in its Orange mobile-phone business from Germany's E.ON for 950 million euros ($889 million), a 64 percent premium to their closing price.

Debt-laden France Telecom said on Thursday it would pay an average price of 9.22 euros per share. Orange, which has seen its stock price tumble 45 percent this year, closed at 5.61 euros on Wednesday, and slipped another half a percent to 5.57 euros in mid-morning Paris trading.

"In view of the current Orange share price, France Telecom does not intend to sell these shares on the market," France Telecom said in a statement.

If France Telecom (PFTE) had decided to flood the market, Orange's stocks price would have fallen further. E.ON, Europe's second-largest energy company, had an agreement to sell the stake, which it received for the sale of its stake in a Swiss mobile phone company.

But France Telecom, which is struggling with debts of 60.7 billion euros, saw its stock decline to a near record low on Wednesday. It slipped another 1.6 percent to 18.30 euros on Thursday as Merrill Lynch cut its rating on the stock to "reduce/sell" from "neutral" for the intermediate term.

Analysts at the investment bank said they were concerned about the company's ability to cut debt, the rising cost of paying interest debt and the possibility that France Telecom may be forced to sell assets below "desirable" levels.

Merrill Lynch said the company's stock could be valued at 25 euros if the company reduced its debt, sold assets and issued shares but it saw little chance of that happening in the short-term.

"We therefore expect the shares to remain under pressure as equity value is gradually eroded."