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Orange float lacks flavor
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February 13, 2001: 11:27 a.m. ET
Cellular operator sells stock at bottom of range, valued at $45B
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LONDON (CNN) - Mobile phone operator Orange made an uninspired market debut on Tuesday, inching just 1 percent above the offer price to the general public.
Shares in Europe's No. 2 cellular firm traded at  0.13 to 9.63 on the Paris stock exchange, after trading as high as 9.90. Orange earlier priced its stock at 9.50, valuing the firm at 48.5 billion ($45.2 billion).
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It's lower than we could have expected...Of course if the market had been better, it (the price) would have been better.
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Michel Bon
Chairman
France Telecom and Orange |
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As an incentive, retail investors were offered the stock for 0.50 less than Institutional investors, who had to pay 10.0 for each share.
The stock was priced at the very bottom of the expected range, as the cellular operator attempted to revive flagging investor interest. The initial public offering was 2.6 times oversubscribed.
The widely-watched flotation, seen setting the tenor for an array of upcoming cellular stock listings, amounts to around a third of what owner France Telecom initially expected when it bought Orange last year.
"There is a reasonably strong body of thought that thinks Orange is quite cheap," Patrick Foulis, telecom analysts at UBS Warburg told CNN.com.
Assuming all options to buy shares are exercised, and including the launch of a convertible bond, France Telecom will reap some 10.3 billion from the sale.
The stock issue, including an over-allotment option, will raise 7.2 billion for France Telecom while the issue of bonds exchangeable for Orange shares, which was 8.2 times oversubscribed, will bring in another 3.1 billion.
Last week, France Telecom cut the expected price range by roughly 18 percent to between 9.50 and 11.0.
The company admitted it was disappointed with the valuation of Orange:
"It's lower than we could have expected...Of course if the market had been better, it (the price) would have been better," Michel Bon, chairman of France Telecom and Orange, told CNN.
The initial public offering price valued Orange at much less than the 65 billion expected in January and far short of estimates for as much as 150 billion in May last year. France Telecom is selling 15 percent of Orange to investors.
Institutional investors snapped up 76 percent of the stock on offer with the remaining 24 percent going to retail investors.
Mark James, analyst at investment bank Nomura, wrote in a research note that Orange was trading at a discount to his firm's 55 billion valuation.
"Orange is a blue chip amongst the deals in the 2001 mobile IPO pipeline," despite the many risks inherent with the company, he wrote.
Some of the risks James highlighted include turning around its loss-making businesses outside the UK and France, competing with market leader Vodafone Group and building up its brand across Europe.
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 ORANGE HISTORY
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April 1994 - becomes fourth entrant into U.K. mobile market
April 1996 - floats on London Stock Exchange with 500,000 users
October 1999 - Germany's Mannesmann buys Orange for $36 billion
February 2000 - Vodafone buys Mannesman and agrees to sell Orange
May 2000 - France Telecom buys Orange for $37 billion
February 2001 – floats on Paris and London exchanges
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"This thing has been bid down and down," said Gary Dugan, market strategist with J.P. Morgan in London. "But I think on fundamentals now, taking a two to three-year view, people have got more comfortable with the level that we're paying."
France Telecom bought UK operator Orange last year from leading rival Vodafone (VOD) for about $37 billion, and then folded its other cellular assets, mainly France's largest network operator Itineris, into Orange.
France Telecom plans to use funds from the IPO to trim its 30 billion debt and to buy back the 14 billion worth of shares it has pledged to recuperate from Vodafone.
Investors gain the upper hand
What had been a sweet market for telecom stocks early last year has rapidly soured, with the high-priced sale of next-generation phone licences across Europe compelling many of the sector players to take on big debts.
That, combined with a raft of upcoming flotations flooding the market with supply, has left investors with little appetite for many telecom share prices.
On the agenda among other mobile operators set to go public this year are the biggest German cell-phone operator, T-Mobil International, Netherlands-based KPN Mobile, and Britain's BT Cellnet.
 UBS Warburg's Foulis said the Orange issue shows that investors have the upper hand in bringing down the valuations of cellular companies.
"The question mark is more that the buy side of the market probably understands fairly well that they can pressure these guys down because of their financial requirements," he said.
France Telecom (PFTE) shares fell 5 percent to 79.80 in Paris afternoon trade. The company on Tuesday reported a 23.7 percent rise in 2000 operating revenue to 33.7 billion as its international business expanded. 
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