France Telecom to Shed Swiss Unit - Analyst Blog

FranceTelecom ( FTE ) plans to sell its Swiss mobile subsidiary, Orange Communication, to the London buyout firm Apax Partners for €1.6 billion ($2.1 billion).

The move is consistent with the company's broader European portfolio asset review and strategy to divest minority holdings. The company primarily intends to shed its underperforming assets in Europe (Switzerland, Austria, Belgium and Portugal), owing to the prevailing weak economic conditions and unfavorable regulatory measures that continue to hamper its top line.

France Telecom also faces tough competition from Bouygues, Telecom Italia spA ( TI ) and Vodafone GroupPlc. ( VOD ). Competition in the domestic wireless space will intensify further in the next year, when Paris-based broadband service provider Iliad SA makes its entry into the market with its 3G offerings.

On the other hand, France Telecom is strengthening its footprint in the emerging markets including Eastern Europe, Africa and Middle East to boost profitability over the next few years. The company is focusing on network enhancements, cloud computing business, strategic partnerships and network-related IT services to accelerate growth in these markets. France Telecom expects sales to double over the next five years in the emerging markets, and hit the $1 billion mark by 2015.

The deal, subject to the approval of the Swiss authorities and France Telecom's board, would be beneficial for the company's operations in Spain, Poland, the U.K and France as well as in the emerging markets of Kenya, Cameroon, and Tunisia.

The largest telecom carrier in Paris is also in talks to divest its Orange Austria unit to Hong Kong-based Hutchison Whampoa Ltd. The company is also planning to exit its Portugal business. Moreover, France Telecom is also trying to strike deals with companies such as Google Inc. ( GOOG ) and Apple Inc. ( AAPL ) to lower the costs of deploying upgraded networks in France.

Besides, France Telecom has agreed to buy 100% stake in Congo China Telecom, the fourth largest operator in the Democratic Republic of Congo. The acquisition is expected to expand the company's presence in Africa and the Middle East region. As per the deal, the company will take over 51% stake from Chinese telecom gear maker ZTE Corp. and a 49% stake from the Congolese government. France Telecom is currently negotiating with ZTE and will work out the government stake purchase later.

In addition, the company is improving its networks and services like IPVPN access, managed services, network resources and Wi-Fi roaming in cooperation with China Telecom.

All the divestitures or acquisitions are a part of the company's five-year (2011-2015) strategy, Conquests 2015, which focuses on enhancing the next-generation broadband access network, increasing international presence as well as expanding its global customer base by 50%. The plan is expected to boost the company's growth prospects in both domestic and international markets.

We are currently reiterating our long-term Underperform recommendation onthe stock.The company retains the Zacks # 4 (Sell) rating for the short term.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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