Government Will Sell Up to 38% of France Telecom in Record IPO

The French government said Monday that it will sell up to 38% of France Telecom for about $12.5 billion in one of the world’s largest initial public offerings.

One-fifth of Europe’s second-biggest phone company will be sold on the stock market, and up to 13% will be swapped with other companies, including a 7.5% stake with European leader Deutsche Telekom, its main international partner. Employees will be able to buy between 3.5% and 4.5%.

The proceeds from the sale will help the government meet the borrowing limits to qualify for European Union currency. The sale will also aid France Telecom in its international expansion, allowing it to raise more capital on the stock market and swap shares with partners just as its home market is opened to competition.

“The government wants to give it the means to keep its world ranking or even improve it,” Dominique Strauss-Kahn, France’s finance minister, said.

Investors can start subscribing to shares beginning Sept. 22, and offers must be confirmed from Oct. 6, the day the price is to be set. Shares will start trading on the Paris and New York stock markets Oct. 20. Some time after that, the company is likely to increase its capital between 5% and 6% by selling more shares. The proceeds from that sale will help the company finance the share swap with Deutsche Telekom, which is worth more than the French company.

“This certainly frees them up to negotiate international alliances and cement the alliance with Deutsche Telekom,” said Helen Pickance, an analyst with market researcher Dataquest.

Strauss-Kahn said analysts’ estimates indicated that 1% of France Telecom stock is worth “just under” $3.3 million, implying that the company as a whole is worth $33 billion. Thus a 38% stake would fetch $12.5 billion, and the value of the 20% stake sold to investors would be about $6.6 billion. Employees will own $1.1 billion to $1.4 billion worth, and other companies, including Deutsche Telekom, will own $4.3 billion of France Telecom. The 7.5% stake in France Telecom that could be swapped for shares in Deutsche Telekom would be worth about or $2.1 billion less than a 7.5% stake in Deutsche Telekom, which is valued at $4.6 billion as of Monday.