France Telecom and Deutsche Telekom made significant moves to part ways last week with France Telecom agreeing to purchase Deutsche Telekom’s and Sprint Corp.’s stakes in the Global One joint venture for a total equity value of $3.88 billion.
The move ended a struggling and unprofitable partnership created in 1996 to provide voice and data services internationally and gives France Telecom and Deutsche Telekom freedom to sell their respective 10-percent stakes in Sprint, which is set to merge with MCI WorldCom Inc.
Prior to its merger announcement with MCI WorldCom, Sprint had been negotiating hookups with France Telecom and Deutsche Telekom for some time, according to people close to Sprint. Deutsche Telekom and France Telecom were strategic partners set to pursue international strategies. But Deutsche Telekom’s move to save Telecom Italia from a hostile takeover from Olivetti SpA with a “white knight” bid last summer damaged relations with France Telecom, which was angered by the move and claimed Deutsche Telekom breached strategic partnership agreements by not revealing its plans. Both companies today are pursuing their own international strategies.
The breakup of Global One was expected since the summer, when Sprint indicated it was negotiating changing the structure with its partners. Plans accelerated when MCI WorldCom and Sprint announced merger plans in October. The breakup gives Sprint nearly $1.13 billion in cash and the repayment of $276 million in debt for its entire stake in Global One. Deutsche Telekom will walk away with $2.76 billion in cash for its stake in the partnership and will discard $188.5 million in debt.
France Telecom and Deutsche Telekom also will give up their special rights as Class A shareholders in Sprint and resign their seats on the Sprint board, voting their shares in favor of Sprint’s merger with MCI WorldCom. Sprint and Deutsche Telekom will continue to support the U.S. and German portions of the Global One network for at least two years.
With its purchase of Global One, France Telecom said its goal is to become the leading pan-European wireline/wireless/Internet provider. It will invest selectively in emerging markets with high-growth potential.
“This acquisition is a major step forward in France Telecom’s international strategy,” said Michel Bon, chairman and chief executive officer of France Telecom. “Using the synergies created by this deal, France Telecom together with Global One will move aggressively in the global corporate market.”
Deutsche Telekom had said Global One was an integral part of its international strategy and claimed in published reports it was interested in buying the partnership. It also has pledged to become a global player present in all large markets, acquiring mobile-phone companies, Internet service providers and information systems groups. The carrier recently acquired U.K. mobile-phone operator One 2 One, but its relationship with France Telecom has somewhat hurt its international quest. France Telecom and Italy’s Enel are fighting to remove Deutsche Telekom from the board of Italian mobile operator Wind SpA.
