Orange bought by France Telecom

France Telecom has agreed to acquire UK mobile operator Orange from Vodafone Airtouch for £25.1bn and plans to combine the company with its existing mobile operations.

The French telco will also take over £1.8bn of Orange debt and has arranged a loan to finance Orange's recent £4.1bn acquisition of its next generation mobile licence in the UK.

France Telecom will combine Orange, its French mobile phone brand Itineris and its other mobile activities into the new company, which is codenamed New Orange. The company will be floated on London, Paris and New York stock exchanges at the end of the year.

UK operator Vodafone was required to either demerge or sell Orange because it had agreed to buy German operator Mannesmann, which had recently acquired Orange. Following the completion of the deal, Vodafone will hold a stake of just under 10 per cent in France Telecom.

The French telco said it will use the proceeds from the initial public offering of Orange to repurchase the shares held by Vodafone.

France Telecom, which beat off competition from Dutch company KPN and US firm MCI WorldCom, said the acquisition is a major step towards becoming a leading telecoms operator with a significant presence in Europe. Orange expects to have 30 million subscribers by the end of the year.

Orange chief executive Hans Snook and finance director Graham Howe will be in charge of the company, which will operate under the Orange brand.

In a statement, Snook said: "Today's agreement more than doubles Orange's scale, reach and capacity to innovate. We have a wealth of talent by combining France Telecom and Orange's 'wire-free' businesses and the platform from which to build a leading global wire-free business."

Bernt Ostergaard, an analyst at researcher Giga Information Group, said: "This deal places France Telecom as a main contender and new challenger to Vodafone's throne as a pan-European operator, eclipsing KPN's plan to fill that spot."

However, Ostergaard said the combined companies may produce clashes. "Orange has a very good administration team, which is very different to France Telecom. There are so many political agendas in France Telecom and there is no way Snook and others will accept this," he said.