Possible Merger for MobilCom

Betten Beursmedia News has reported that France Telecom is looking at a possible merger of KPN's E-Plus with MobilCom if it is forced into a takeover of MobilCom. France Telecom is reported to have offered to buy out the entire stake held by MobilCom's founder and chief executive, Gerhard Schmid in order to resolve a long standing dispute between the two companies. Schmid told the Frankfurter Allgemeine Sonntagszeitung on Sunday that he will force France Telecom to honour its put option and buy 33% of his 39% stake in the company if France Telecom does not make a suitable offer.

Any purchase of Schmid's stake would force France Telecom into a takeover of the whole company as it would own more than 30% of the company, the trigger point for a takeover in Germany. Unless it is able to buy the stake through a holding company, it would also then be forced into incorporating MobilCom's US$4.5 billion debt into its own accounts. However, a merger with E-Plus would enable both KPN and France Telecom to float the merged entity as a separate company, helping to reduce their own debt mountains into the bargain.

There is also some concern over what would happen to the 3G license if MobilCom was to merge with E-Plus, as the two dominant players in the market, Vodafone D2 and T-Mobil have already indicated that they would not standby and let the surplus license to be sold for less than the original auction price. That would either result in the license being handed back to the government, who would doubtless be unwilling to offer a refund, or for it to be mothballed until it could be sold in a few years in time piecemeal to boost spectrum capacity on the other 3G networks.

In a separate development, the New York based investment manager, Wyser-Pratte Management has expressed concern about what it says are significant inconsistencies in the disclosures France Telecom has made about its off balance sheet financing obligations to MobilCom. "Over the past several months France Telecom has made what seem to us to be conflicting disclosures regarding its obligation to finance the build-out of German mobile phone group MobilCom's UMTS business," said WPM President, Guy Wyser-Pratte.

As late as November of 2001, France Telecom announced in a filing with the SEC that it has a commitment to provide loans and/or loan guarantees to MobilCom to the extent of any financing shortfalls until the commencement of (MobilCom's) UMTSD operations. On February 18, 2002, France Telecom seemed to reverse course and indicated its obligations to Mobilcom were subject to agreement on a business plan for MobilCom between France Telecom and MobilCom founder Gerhard Schmid. France Telecom noted that any dispute between Schmid and France Telecom was subject to some sort of mediation process which permitted France Telecom to override any mediation impasse. In contrast, also on February 18, MobliCom stated its belief that France Telecom has a contractual obligation to provide the needed financing and no business plan approval is required. Both MobilCom and France Telecom agree the terms of their agreement are set out in a binding cooperation framework agreement (CFA). MobilCom has requested the confidential agreement be released to the public. "We are hoping the regulators in both the US and Europe will take a look at FT 's disclosures on this issue and seek clarification from FT. FT investors have the right to know the full extent of FT's off-balance sheet obligations, " concluded Wyser-Pratte."

Posted to the site on 26th March 2002