France Tel chief pulls plug
Paris, France (CNN) -- Michel Bon resigned as chief executive of France Telecom as the company posted a 12.2 billion euro first-half loss.
Bon's resignation opens the way for Europe's second largest phone company to raise much needed cash to cut its debt mountain. In his last act as chief executive Bon ditched cash-hungry German partner MobilCom threatening 5,000 jobs.
France Telecom under the stewardship of Bon spent billions on expanding during the telecom boom of the late 1990s, a process that has left the company with debts of 69.7 billion euros.
Analysts and investors will be disappointed that the France Telecom board, which met last night, did not hammer out a refinancing package. Bon was opposed to the company raising additional funding from shareholders but now analysts expect France Telecom to raise about 10 billion euros.
James Enck, telecom analyst at Daiwa, told CNN that 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 its stake below 50 percent.
The French government said it would take every measure to prevent the 55.5 percent state-owned group hitting funding problems, including contributing to a "substantial" capital strengthening -- but it did not give a timeframe for this.
"The new chairman will very quickly propose to the board of directors a refinancing plan enabling its debt to be reduced and its financial structure to be repaired," the finance ministry said in a statement after Thursday's four-hour board meeting.
The government has reportedly already primed Thierry Breton, head of consumer electronics group Thomson Multimedia to slip into Bon's shoes. But both the government and Breton denied on Thursday he had already accepted the post.
Since the beginning of this year, its stock has plunged 80 percent amid concerns about its debt and holding in MobilCom. France Telecom closed down 3.7 percent at 10.63 euros, not much more than a third of its original flotation price.
Bon, 59, was said to be "relaxed" at the board meeting on Thursday, according to staff representatives. Union members on the board said there had been no drive to oust Bon at the meeting. Many board members backed Bon, taking issue only with his current strategies, Reuters said.
The seven union members aside, the board voted unanimously to stop financially supporting the loss-making MobilCom -- a decision union representatives said put 5,000 jobs on the line as the mobile operator is likely to slide fast into insolvency.
"We all came out in opposition to a move that would send MobilCom into insolvency. There is the threat of 5,000 people losing their jobs," Alain Baron of the leftist Sud union said.
MobilCom said it would not make a statement until Friday, but said earlier it would go out of business if France Telecom pulled the plug. A spokesman for its workers' council blasted the move and said unions would press management on Friday to preserve as many jobs as possible.
"We are shocked that even state-owned enterprises can overlook 5,000 employees," the spokesman told Reuters.
France Telecom set aside 11.1 billion euros to cover its exposure to MobilCom and other items, forcing the company into a 12.2 billon euros.
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 decided not to buy 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.
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