France Tel CEO could be ousted

Chief Executive Michel Bon insists he will not resign despite France Telecom's debt being cut to one notch above junk status

LONDON, England (CNN) -- France Telecom Chief Executive Michel Bon could be the next high-profile executive to be fired, analysts have said.

The board of France Telecom meets on Thursday to discuss a number of issues, including what to do with its German mobile phone company MobilCom and possibly whether to ask shareholders for billions of euros to cut debt. A decision along with delayed first-half results are expected on Friday 13.

France Telecom has spent billions on expanding during the telecom boom of the late 1990s, a process that has left Europe's second-largest phone operator with debts of about 70 billion euros and calls for the chief executive to go.

Top executives at Deutsche Telekom, BT Group, KPN have all lost their jobs as investor sentiment reversed sharply as debt problems soared. Credit agencies were quick to grade some company debt as junk further imperilling the finances of telecom operators.

MORE STORIES • France Tel. posts 8.3bn euro loss  • 'No public plans' for France Telecom   • France Tel strikes MobilCom deal  • MobilCom 'can't challenge rivals'

"Anything could happen," James Enck, telecom analyst at Daiwa, told CNN. "Bon could go. The board will discuss a number of issues, the company needs a financial, management and strategic overhaul."

On Friday, the company is expected to deliver first-half losses of 10-15 billion euros as it writes down the value of assets, French newspaper Le Figaro reported earlier this week. The company could follow the example of BT and KPN and ask shareholder for money to pay down debt.

The company could raise about 10 billion euros, analysts said, if Bon is ousted because he is opposed to such a move.

But Enck believes the company needs to raise at least 13 billion euros to put it on a par with Deutsche Telekom's debt to EBITDA (earnings before interest, tax, depreciation and amortisation -- a measure of profitability for a debt-laden company) ratio.

France Telecom is worth about 11 billion euros at the moment. Any attempt to raise additional funds would dilute current shareholder value and the French government would need to bring in new laws if it was to reduce it stake below 50 percent, said Enck.

The French government could be reluctant to increase its 55 percent stake in France Telecom without falling foul of European Union rules on budget deficits. But the Finance Ministry has said if France Telecom had refinancing problems, "appropriate measures would be taken.''

France Telecom's stock has been buoyed by hope it would be bailed out by the government. Since the beginning of this year, its stock has plunged 80 percent amid concerns about its debt and holding in MobilCom.

And that is one of the biggest thorns in the side of France Telecom.

"Its facing the mother of all liabilities," said Enck. "It has a dilemma, whether to stick with the business or dump it. Either way, it faces costs. The legal costs could be the same as rolling out high-speed wireless networks."

"This could contribute to the reason why the media thinks it is going to post its biggest loss in history."

Le Figaro said Chief Executive Michel Bon would like to abandon MobilCom but the government would like the French group to buy out the German company. MobilCom, which is Germany's fifth-largest mobile phone company, is heavily dependent on finances from its French partner.

After months of trading public insults with MobilCom's former chief executive Gerhard Schmid over the scope of the French group's financial obligations to roll out high-speed wireless services in Germany, the French camp is pouring over MobilCom's books to assess whether to bid for the 71.5 percent of MobilCom it does not already own.

Schmid was ousted by France Telecom in June over a dispute about an illegal stock option plan. But Schmid is suing France Telecom to buy his stake in the company. Schmid and his wife own about 50 percent of MobilCom.

"France Telecom is under political pressure to retain MobilCom and save 5,000 German jobs. Such are the complexities of life in the EU," said Enck. "The issues are so complex anything could happen."

Whatever happens, investors will be hoping the nightmare will be over by Friday.