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France Telecom Group acquires 80% of mobile operator Amena in Spain for 6.4 billion Euros Paris, July 27, 2005
France Telecom Group announced today that its subsidiary Orange S.A. has executed an agreement to acquire 80% of the shares of Auna Operadora de Telecommunicaciones S.A. ("Auna") owner of 97.9% of Retevision Movil S.A., a mobile operator under the tradename "Amena". This operation will be definitely closed after the prior separation of the cable activities of Auna (Auna Tlc). France Telecom Group will thereafter proceed to merge Auna, Retevision Movil S.A. and France Telecom Group España (which holds the fixed and internet business of the group in Spain under the Wanadoo brand). Following the completion of the merger, France Telecom Group will retain approximately 75%-80% of the new merged entity. The balance (between 20%-25%) of the shares will be held by Santander, Union Fenosa and Endesa as well as by the minority shareholders wishing to keep their participation among which certain Spanish savings banks.
"I am pleased to announce today, together with our Spanish partners, the creation of a first tier challenger in Spain to offer convergent services to our clients, both individuals and enterprises. Spain will be an active platform for the launching of innovative services and will benefit from the strength of the Group at the European level. The acquisition of Amena comes less than a month after the launch of NExT. It provides a significant contribution to our program for development and growth in Europe. Further to an exhaustive study of the situation by our directors over the past few weeks, France Telecom Group is seizing this opportunity at a time when the mobile business of Auna can be purchased separately. The transaction complies with our undertakings to the market and has unfolded favorably for the Group. The merger of France Telecom Group España and Amena confirms our strategy as an integrated European operator and allows us to accelerate the implementation of the NExT plan."
With 9.7 million clients and a 24% market share at the end of June of 2005, five years after its debut Amena is one of the best number 3 cellular operator in its local European market. With more than 48% of its clients under contract and an ARPU(1) in excess of 27 Euros, its gross operating margin rate(2) exceeds 30%. This merger reinforces France Telecom Group's leading role in one of the most attractive telecommunications markets in Europe. Spain is the number 5 market in Europe with an estimated growth potential for mobiles of approximately +6% per year between 2005 and 2008, better than the European average. This merger is accompanied by a strategic partnership with the current Spanish shareholders of Amena, Grupo Santander, Endesa, Unión Fenosa and certain other minority shareholders among which several Spanish savings banks. France Telecom Group's Spanish partners will retain 20% of Amena, and after the merger of Amena and France Telecom Group España Spain will hold between 20%-25% of the merged entity, given the more leveraged financial structure of that company. The Spanish partners have undertaken to retain their share interest in France Telecom Group España for a minimum period of 3 years. At the end of these 3 years, they may sell their interest to a third party or to France Telecom Group (France Telecom Group having a right of first refusal) and France Telecom Group has undertaken to indemnify them to the extent the sale price (to France Telecom Group or a third party) shall be less than 90% of the current transaction price increased by simple interest at an annual rate of 4.5% compounded. Already active in Spain for more than 7 years via several subsidiaries, France Telecom Group is well known in the Internet market under the trade name Wanadoo. With 1.4 million Internet clients, including more than 500,000 ADSL lines, France Telecom Group España accounts for more than 16% of the ADSL market and covers 50% of the local unbundled loop. 73% of its ADSL clients are dual-play clients. With a growth of its revenues in the first semester 2005 of more than 14%, France Telecom Group España has a strongly increasing positive gross operating margin. Joining forces with Amena and developing new integrated services will dynamize Wanadoo's Internet strategy. On a pro-forma basis, the France Telecom Group will have at year-end 2005 more than 11.8 million clients in Spain and realize sales of 4.1 billion Euros and a gross operating margin of around 1.2 billion Euros for Capex(3) of roughly 750 million Euros. The annual growth objectives of the France Telecom Group in Spain for 2006-2008 are 7 to 8% for revenues and 11 to 15 % for gross operating margin with reduced Capex. Looking ahead to 2008, France Telecom Group España aims to have more than 14 million customers. In 2005 and on a pro-forma basis, France Telecom Group España will represent 17% of the Spanish telecom market. Through this acquisition, France Telecom Group positions itself as the most important challenger to the incumbent Spanish operator.
This transaction is in line with the NExT program (New Experience in Telecommunications) and allows France Telecom Group to reinforce its strategy as an integrated operator in Europe. France Telecom Group will henceforth be in a position to launch convergent offers in broadband and mobile in a key European market. France Telecom Group España will study the opportunity of using, for its integration effort, a single strong brand: "Orange". One month after the launch of our strategy for 2005-2008 in the context of the NExT program, this transaction allows the Group to address the issue of growth in Europe. The European perimeter of NExT and the utilization of cash resources are clarified at the outset.
Financed to the extent of 3 billion euros by a capital increase, the transaction fully complies with the cash utilization criteria defined in the NExT plan. It should have a positive impact on free cash flow per share and net income per share before amortization of goodwill in less than twelve months. The objectives of the Group for ratio of net debt to gross operating margin for 2005 below 2.5x (pro forma) and below 2x for 2008 as well as the objective for dividend distribution in 2006 are maintained.
The merger of Amena and France Telecom Group España subsequent to the acquisition, for an amount of 6.4 billion euros, of an 80% interest in Amena has a strong industrial logic. The transaction values Amena at 8.9 billion euros, prior to synergies, to which should be added more than 1.7 billion euros of value related to tax assets, and giving effect to debt and minority interests of around 2.6 billion euros. The expected multiple of gross operating margin for 2005 before taking into account synergies is between 7.8 and 8.0x.
The value of this assets (more than 1.7 billion euros) derive in part from tax loss carry-forwards of Auna; and Retevision Movil S.A.. In addition, the operational reorganization of the France Telecom Group in Spain will entail the merger of Auna, Retevision Movil S.A. and France Telecom Group España, which are anticipated to result in a further tax loss, utilizable over a twenty year period. Thus, these tax assets should be available for set-off against future profits generated by the new merged France Telecom Group España entity.
Amena will benefit from the position of France Telecom Group with corporate clients, as well as from the group purchasing and investment programs, which should allow additional economies of scale. France Telecom Group España and Amena will mutually benefit from cross-selling programs. France Telecom Group has established the objective of achieving synergies of more than 1.1 billion Euros on a present value basis with a positive impact on free cash flow(4) of more than 130 million Euros per year beginning in 2008, including: - approximately 10 million Euros of economies of scale in purchasing and in terminals annually;
The transaction could be financed in part by a capital increase reserved for and subscribed to by the vendors in the aggregate amount of three billion euros, subject to the approval of the general shareholders meeting of France Telecom Group. In such case, France Telecom Group would indemnify the sellers against losses and would receive the gains realized upon the sale of such shares before 31 March 2007. Furthermore, France Telecom Group would reserve the right to repurchase such shares in whole or in part subject to the obtaining of the required authorizations . Finally, until 31 March 2007 at the latest, France Telecom Group will guarantee to the Sellers an annual rate of return on their France Telecom Group shares equivalent to 4%. Selling restrictions would include a prohibition on sales into the market before 1 October 2006; at the end of such period, France Telecom Group would have the right to force the sale of such shares until 31 March 2007; the sellers would have the right to sell shares into the market starting on 1 January 2007, in coordination with France Telecom Group. France Telecom Group reserves the right to make a public offering with preferential subscription rights for existing France Telecom Group shareholders instead of the capital increase reserved for the vendors as described above. These securities issued in the framework of such capital increase, if registered in the United States, may not be sold nor may offers to buy be accepted before the time the required registration statement has been deposited before the American Authorities. This release does not constitute an offer to sell or the solicitation of an offer to buy such securities.
The signature of the final agreements will take place once the transaction is approved by the Boards of Directors of Orange S.A. and Union Fenosa, which must be held before 29 July 2005. The final closing of this operation is subject to the previous separation of the cable activities of Auna as well as the fulfillment of other conditions precedent, in particular the obtaining of requisite competition law approvals.
BNP Paribas, NOQCA Partners and Toulouse & Associés are the financial advisors of France Telecom Group on this transaction and SG CIB is the financial advisor to the French State. Jones Day is the legal advisor to France Telecom Group on this transaction, Shearman & Sterling is the legal advisor to France Telecom Group with regards to the financing issues. (1) Monthly average revenue per user.
Concerning France Telecom Group France Telecom Group, one of the world's leading telecommunications operators, serves 129.6 million clients on five continents (220 countries or territories) as of March 31, 2005 and had consolidated sales of 47.16 billion Euros in 2004 by French accounting standards (46.16 billion Euros by IFRS standards). For the 1st quarter 2005, consolidated sales were 11.62 billion Euros by IFRS standards. Introduced in June 2005, the transformative NExT program (New Experience in Telecommunications) will permit the Group to pursue its transformation as an integrated operator and to establish it as the operator of reference for new telecommunications services in Europe. By 2008, its customers will have access to a universe of enhanced and simplified communications services notably through the Orange brand. Number two mobile operator and provider of internet services in Europe and amongst the world leaders in providing telecommunication services to multi-national companies, France Telecom Group (NYSE:FTE) is listed on the Paris and New York stock exchanges.
This press release contains forward-looking statements about France Telecom Group (and, as applicable, its affiliates). Although France Telecom Group believes its forecasts are based on reasonable assumptions, these forward-looking statements are subject to numerous risks and uncertainties and should not be regarded as a representation that anticipated events will occur or that expected objectives will be achieved. Important factors that could cause the effective results or performance to differ materially from the results anticipated in the forward-looking statements include, among other things (but are not limited to): Risks associated with the satisfaction of the conditions to complete the acquisition of Amena; the failure of the completion of the merger for any reason; the amount of the costs, fees, expenses and charges related to the acquisition; Amena's dependence on certain suppliers and customers; the ability of France Telecom Group to reduce costs and obtain synergies with Amena business; the implementation and acceptance of Amena's (and, as applicable, its affiliates') new products and services; the effect of, and changes in, regulation and government policy; the unpredictability of growth and the intensity of competition in the mobile and broadband sectors of the telecommunications industry; and the effects of technological changes in the telecommunications industry generally. In addition, any forward-looking statements and the other information, to the extent that they are presented in accordance with International Financial Reporting Standards (IFRS), may be subject to additional specific risks and uncertainties relating to the possibility of changes in IFRS standards prior to December 31, 2005. More detailed information on various risks that could affect France Telecom Group's financial results is found in the Document de Référence filed with the AMF on March 2, 2005 and in the annual report filed on Form 20-F with the U.S. Securities and Exchange Commission on May 16, 2005. The forward-looking statements contained in this press release speak only as of the date hereof and France Telecom Group does not undertake to update any forward-looking statement to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events. This press release does not constitute and should not be understood to constitute a public offering of securities nor an offer to sell or the solicitation of an offer to buy any securities. |
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Strengthening the position of the Group in Spain, fifth European market with an estimated growth potential between 2005 and 2008 of approximately 6% for mobile and more than 10% for data and internet.