Globally inclined

France Telecom brokers merger of Global One, Equant

Last week's merger announcement between Equant and Global One signals the establishment of a new player in the top tier of the global data/IP industry and another step in France Telecom's effort to become a worldwide provider of integrated telecom services.

Engineering the merger between Amsterdam-based Equant and its Global One subsidiary addresses the data/IP portion of France Telecom's global strategy, said France Telecom CEO Michel Bon. Combined with the acquisitions of consumer Internet provider Wanadoo and wireless operator Orange, the deal positions France Telecom to take advantage of the convergence of data and wireless technologies with the deployment of third generation wireless services, he said.

"Everything has to blend together," Bon said during a news conference. "We at France Telecom will have to demonstrate that there is a point to having all this together."

The agreement calls for France Telecom to pay $3.97 billion for a 54% stake in network services provider Equant. In return, Equant will receive the data business of France Telecom subsidiary Global One to form a data/IP concern designed to serve the telecom needs of multinational corporations.

Officials for the companies say Equant and Global One customers include at least two-thirds of the world's top 100 companies - a base substantial enough to place the merged entity near the forefront of the industry, said Pascal Aguirre, vice president for Adventis.

"With this combination, the game is now at the retail level between WorldCom, Concert and now Equant/Global One," Aguirre said. "What this deal really does is put Global One back on the map... by actually letting Equant be the entity instead of Global One, which is undoubtedly a positive move."

Indeed, Global One, which has its own checkered past, has been a financial burden to France Telecom, Bon said.

Equant, meanwhile, has encountered its own set of problems, Aguirre said. "As [Equant] was growing... it kept on butting into the same problem over and over: It didn't have the scale to allow unit costs that were highly competitive against other players, primarily because it didn't have a strong wholesale business or a strong backbone," Aguirre said.

Established primarily to serve the needs of the airline industry through its relationship with the SITA Foundation, Equant fits the retail bill with a far-reaching network that serves 220 countries.

In addition to their complementary assets, officials for the companies believe synergies associated with the deal will generate $375 million in annual savings.

Because so many obvious benefits of merging exist, speculation about a deal has been rampant for several months. With the SITA Foundation publicly wanting to shed its 34% stake in Equant, companies such as Global Crossing, Deutsche Telekom and Infonet reportedly have taken turns with France Telecom at the bargaining table.

But none of these efforts generated a deal. Just a month ago, France Telecom publicly acknowledged its negotiations with Equant but issued a statement claiming it did not believe a deal would be reached given the stock market conditions.

The problem was that SITA Foundation officials only wanted to sell its stake in Equant for cash, not stock, because SITA officials feared a weak stock would dilute the value of any transaction.

Last week's deal was finalized primarily because the SITA Foundation agreed to accept France Telecom stock in the transaction.

"While the market has been volatile, we have reached a bit of a plateau," Bon said. "It's difficult to do a transaction when the share price is moving up and down.... [SITA Foundation officials] were looking for cash, and they came to the rational decision that some shares of some companies is equivalent to cash."