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Big bailout for France Telecom
PARIS, France (CNN) -- France Telecom has outlined plans to cut debts by 30 billion euros ($30 billion) over the next three years, after the government announced a massive rescue plan for Europe's second-largest phone company. The company has been straining under a debt load of 70 billion euros, about three times the value of the company, after former Chief Executive Michel Bon was forced to pay for acquisitions with cash during the telecom boom more than two years ago. Bon spent more than 100 billion euros -- about 80 percent in cash, because the government was unwilling to cede control. The French government has 56.5 percent stake in the telecom operator and under French legislation the state's holding could not be reduced to less than 50 percent. The government has now said it is willing to give up majority control and promised to pump 9 billion euros into the former phone monopoly, as part of the company's strategy to tap investors for about 15 billion euros. France Telecom will also cut debt by another 15 billion euros by cutting spending, costs, investment and jobs. It has decided not to pay a dividend to shareholders in 2003.
Chairman Thierry Breton, recruited two months ago after the government ousted Bon, and the state hammered out the agreement to rescue the phone company over the last two months. Breton has been called on twice before by the government to save troubled state-owned companies and has taken consumer electronics group Thomson from the brink of collapse to the biggest seller of TV sets in the U.S.. He drafted in Thomson's non-executive chairman Frank Dangeard to run France Telecom's financial recovery programme. Breton said after a five-hour board meeting on Wednesday night: "Our first priority is to loosen the financial noose.'' France Telecom, whose debt is the biggest of any listed firm in the world, said debt reimbursements due by end-2005 would hit 50 billion euros -- 15.2 billion next year, 15 billion in 2004 and about 20 billion euros in 2005. According to credit rating agency Standard & Poor's, France Telecom's interest payments on debt could stand at about $4.5 billion next year. France Telecom's stock, which has fallen about 60 percent this year, rose 8.5 percent to 17.59 euros in early Paris trading on Thursday. But its stock is worth a fraction of its October 1997 floating price of 27.75 euros. The company said it would freeze hiring through June 2003 but gave no details of further job cuts. It has already said 20,000 jobs would go through early retirement over the next three years. Union officials demanded more information on jobs and vowed to fight a cut in the state's stake. Half of France Telecom's 220,000 staff stopped work for a day in late November as other public sector workers staged protests across France against privatisation, pensions and budget cuts. Communist-backed trade union CGT, which is represented on the group's board, accused the government of selling out to market speculation by accelerating privatisation. But some heads rolled at the top of the company, with Finance Director Jean-Louis Vinciguerra replaced by Michel Combes, former head of France Telecom broadcasting unit GlobeCast who is now at tour operator Nouvelles Frontieres. Nicolas Dufourcq, 39, the high-flying chief of Wanadoo who had once been seen as a possible successor to Bon, quit at the board meeting and was replaced by Olivier Sichel. Sources close to the board said Orange chief Jean-Francois Pontal had also told other executives he would leave in March, Reuters said. Reuters contributed to this report.
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