PARIS - France Telecom Corp. said Monday it would buy the free-floating shares of mobile operator Orange from minority shareholders. The deal, worth about 7 billion euros, marks the end of Orange's era of independence, which began with a stock market float in February 2001.

Minority shareholders currently own 13% of Orange. France Telecom is offering 11 of its shares for 25 of the company's shares. Taking into account Friday's stock exchange rates, the premium for minority shareholders is thus around 20%. Under the terms of the deal, Orange shares are valued at €9.94. In 2001, however, they were sold to institutional investors at almost the same price - €10; for retail buyers, the price was then €9.5.

The long-awaited Orange deal reflects the current healthy state of France Telecom's business and the desire of the corporation's new CEO, Thierry Breton, to consolidate its business again. If France Telecom manages to obtain more than 95% of Orange shares, it will probably be able to force other minority shareholders to sell their shares.

The deal could reduce the French government's stake in France Telecom, currently around 59%, to around 53%, a reasonable level given that current laws require the state to own at least 50% of the corporation. The government is currently working to change the law in an attempt to speed up the privatization process. France Telecom's majority stake is considered one of the government's most valuable assets.

Since the state's share has already come very close to the 50% threshold, a similar deal by France Telecom to buy out minority stakes in Wanadoo is unlikely to take place in the near future; the corporation's management will have to at least wait for a change in legislation.

In an effort to win the unions' approval for the deal, France Telecom's management has promised to preserve its employees' prestigious status as social workers. It was also announced on Monday that Orange's board of directors and management team will be retained. "We want to stress that this is not a question of colonization," a spokesman for the corporation said. "The management will remain in the hands of Orange people."

According to France Telecom itself, the corporation's debts for the period from December to June decreased by 18.7 billion euros to 49.3 billion euros. The volume of capital increased by 15 billion euros. (FT, 1. 09. 2003, Alexander Safin)

France Telecom buys Orange shares