France Telecom (FTE), the largest telecom carrier in Paris, is in talks to buy Congo China Telecom, the fourth largest operator in the Democratic Republic of Congo.
The acquisition of Congo China Telecom would include the takeover of a 51% stake owned by Chinese telecom gear maker ZTE Corp. and the 49% stake from the Congolese government. The buyout value is estimated at €300 million ($425 million).
France Telecom is currently negotiating with ZTE and will work out the government stake purchase later. The planned acquisition is part of the company’s five-year (2011–2015) strategy, Conquests 2015, to expand in the Africa and the Middle East region.
Conquests 2015 is expected to boost the company’s growth in both domestic and international markets. Over the past year, France Telecom is widening its international footprint. The company is rolling its brands in Tunisia, establishing itself in Morocco, acquiring an interest in Meditel and improving its relationship with Egypt. France Telecom expects sales to double over the next five years in emerging markets largely through acquisitions.
On the domestic front, France Telecom remains significantly challenged by weak economic conditions and unfavorable regulatory measures across its key European markets that continue to weigh on its top line. The company also faces tough competition from Bouygues, Telecom Italia spA (TI) and Vodafone Group Plc. (VOD).
France Telecom’s sustained contract customer growth backed by the success of the quadruple play offer, “Open”, and strong adoption of smartphones are expected to minimize competition in its domestic market. In addition, France Telecom is working to generate profitability in its domestic segment with solid improvements in Europe.
Furthermore, France Telecom is mulling to sell its European (Austria, Belgium, Portugal and Switzerland) assets worth more than €1 billion due to unfavorable regulatory measures, which have adversely affected its revenues. Moreover, France Telecom is also trying to strike deals with companies such as Google Inc. (GOOG) and Apple Inc. (AAPL) to lower costs of deploying upgraded networks in France.
We are reiterating our long-term Neutral recommendation on the stock. The company retains the Zacks # 4 (Sell) rating for the short term.
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