France Télécom yesterday announced its intention to buy out minority shareholders in its global business networks and services unit, Equant. The move comes hard on the heels of the agreement of the French regulator, the ART, allowing France’s incumbent to increase line rentals by 23% over three years (for the full story, click here). The latter move is estimated to net FT €1.5bn per year — so the Equant deal looks like small change from that revisionist pact between FT and the French state.

Fault to a generosity?
The offer equates to €4.20 per Equant share, which works out as a premium of 16.7% over the closing price on 21 January and 13.5% over the average across three months. Like most ‘global carriers’, Equant is losing money at an alarming rate. By gaining 100% control, FT could consolidate the debt and cross-account its ongoing losses against more profitable slices of its business.

FT’s control of Equant came in the wake of the collapse of FT’s ‘Global One’ relationship with Deutsche Telekom (and Sprint of the US), as part of FT’s subsequent ‘hell hath no fury’ international strategy, which occurred as the market imploded. Prior to FT’s involvement, Equant was the collectively-owned successor to the telecom activities of SITA, the global airlines communication consortium which was strong on global reach but weak on technology. It remains strong on global reach…

The bright idea is that taking sole control of Equant conforms to the latest France Télécom policy with regard to the merits of 100% ownership of all such assets. The truth, more likely, is that it would cost FT more to ‘sell’ its 54% in Equant than it costs to buy the outstanding 46%. Work out that conundrum in order to stake your personal claim for the Nobel Prize in Economics. [Hint: you will not win.]

Mais non…
"Our proposal represents an excellent opportunity for Equant shareholders. The proposed transaction will provide Equant with a financially sound base and broader resources to continue deploying state-of-the-art solutions to enterprise customers who are demanding increased integration", said Michel Combes, chief financial officer of France Télécom. "For France Télécom, integrating Equant's business is consistent with the Group's transformation aiming to offer demand-driven, integrated services to its customers in the enterprise, home and personal segments. This is an opportunity for France Telecom to re-affirm its commitment to its business customers and consolidate its leadership on the enterprise market."

A statement adds: “This proposal, in addition to offering France Télécom the opportunity to accelerate its integrated operator strategy on the enterprise market, constitutes a long-term answer to the structural challenges facing Equant on a stand-alone basis.”

Equant responded that “despite a better than expected year-end cash position, the anticipated further deterioration in the Company's results in 2005 and later years has led the Company to request from France Télécom a $250mn credit facility to assist the Company in meeting its financing requirements into 2006. France Télécom has agreed to provide that facility.”

Mais oui…
Life must be difficult for those in charge of France Télécom and Equant. To understand it all, get out your French dictionaries, look for subsidiare and hang a quick right to reach subventionner. Do a handbrake turn through 180 degrees and go back and back to the left until you get to arrangement de la vitrine. My French dictionary does not do 'loss of face' or 'failure of imperial ambition'. Maybe time for a 21st century version. I'll buy two copies and send the spare to Paris.
Jim Chalmers