France Telecom’s decision to sell its stake in Eutelsat to the French investment company Eurazeo has cost the French telco more than 100 million euros ($108 million), compared to the price it could have got if it had accepted Eurazeo’s initial offer during exclusive negotiations last year.

Eurazeo has agreed to acquire a 23.14 per cent stake in European satellite operator Eutelsat from France Telecom in a transaction subject to regulatory approval. Eurazeo has long been interested in Eutelsat, and in the middle of last year secured the right for a short period of time to hold exclusive negotiations with France Telecom, but failed to reach a deal.

The deal values France Telecom’s stake at 447 million euros ($482.6 million) and Eutelsat’s overall equity at 1.93 billion euros ($2.08 billion). France Telecom will reinvest a maximum of 74 million euros ($79.9 million) for a 20 per cent stake in the holding company created by Eurazeo to acquire Eutelsat. France Telecom plans to use net proceeds of 375 million euros ($402.7 million) to reduce debt.

Yet, while the deal is good news for France Telecom as it can reduce its heavy debt load, it could have got a higher price if it had closed the deal with Eurazeo last year. Eurazeo’s initial offer in July would have valued France Telecom’s stake in Eutelsat in excess of 550 million euros ($593.9 million).

France Telecom has paid a heavy price for its indecision. Gilbert Saada, member of the executive committee at Eurazeo, told Interspace: “We started negotiations in November 2001. This led us in July to [exclusive talks with] for five weeks. We were able to carry out due diligence and we offered France Telecom a price with the equity of Eutelsat valued at 2.4 billion euros ($2.6 billion). France Telecom stopped the discussions saying it was not the price they expected.”

The deal had looked dead, but a change in the management team at France Telecom revived it. “We stopped discussions in early August,” Saada said, adding, “Then the management team of France Telecom changed and the new management understood it was a minority stake for them and not a core business and the price was not so bad and other alternatives remained unclear. The change of management was key to the deal. We re-started discussions with the new management of France Telecom in early December. The price is lower than the price in August, Eutelsat’s equity is now valued at 1.93 billion euros, compared to 2.4 billion euros five months ago.”

Eutelsat’s future has been under the microscope for some time, particular with high-profile bids from Intelsat and PanAmSat.

Saada said Eurazeo wants to help grow the FSS player to be one of the major players in the industry. He said: “It is not a short-term investment. That is not our business to invest and then a few months after find an exit. Our business is to develop the company. We are not the majority shareholder, but we are the main shareholder. [In co-operation with] the management we want to develop Eutelsat. We want to help in terms of expanding through external growth and make Eutelsat more a consolidator than a target for Intelsat or PanAmSat.”

Eurazeo could increase its stake still further. British Telecom is rumoured to be looking to sell its stake and there are a number of other Eutelsat shareholders that have expressed their interest as well. “If one of the shareholders of Eutelsat declares they are interested in selling their stake, then obviously we will listen to them and maybe find a way to consolidate our shareholding. One of the objectives we have is to simplify the shareholding structure of Eutelsat. There are almost 40 shareholders and that is too many. You cannot have an efficient management if you have so many shareholders around the table,” Saada said.

Eutelsat’s main shareholders are investment companies rather than telcos. This will make things easier for the management team led by CEO Giuliano Berretta, Saada said. “When you have players like FT, BT, Deutsche Telekom, Telecom Italia around the same table, it is very difficult to lead everyone to a common conclusion. You quite often have a conflict of interests. I think it will be easier in the future, even for Berretta and for the shareholders who are closer in terms of the way they view the future.”

The deal is an important breakthrough for Eurazeo. Saada said, “In terms of growth and strength of the business, they are in a much better position than Intelsat for example. Maybe there would be a fit with Intelsat but it is too early to envisage such a combination. We have been working for 18 months on this, so it was very important for us to conclude this deal. In terms of investment, it has to be compared to our net asset value of 3.3 billion euros ($3.58 billion). It represents less than eight per cent of our net asset value.” –Mark Holmes

(Contact: Gilbert Saada, e-mail: [email protected])

Eutelsat Shares Sale Timeline

• February 2003: France Telecom agrees to sell its 23.14 per cent stake in Eutelsat to French investment company Eurazeo.
• December 2002: Deutsche Telekom agrees to sells its 10.87 stake in Eutelsat to De Agostini S.p.A., a leading Italian publishing group.
• November 2001: Telecom Italia (TI) sells a variety of satellite interests including a 20.5 per cent stake in Eutelsat to Lehman Brothers Merchant Banking partners. The deal valued TI’s entire portfolio of satellite assets at 550 million euros.