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Orange chief hopeful of sector turnround

Orange chairman and chief executive Stéphane Richard

Stéphane Richard, Orange chairman and chief executive

After years of being squeezed by a price war of unprecedented severity and the grip of regulations, Stéphane Richard, chief executive of Orange, can afford himself some hope for the years ahead.

“We are higher than Free’s arrival two years ago. I am happy with this position,” Mr Richard said, alluding to a period when the arrival of a fourth, cut-price competitor in France’s mobile market sent prices – as well as Orange’s shares – spiralling downwards.

A share price recovery has been helped by extensive cost cutting at Orange, something Mr Richard is committed to maintain with no plans to replace many of the 30,000 employees set to retire in the next few years.

But, more importantly, investors have begun to take greater interest in Orange due to the evolving competitive situation in European telecoms. Mr Richard believes Orange, and perhaps the rest of European market, has reached the cyclical nadir. The French price war might well be over.

“We are at the end of the cycle. We have had massive price cuts in the French market – 30 per cent on average in mobile contracts – so we are now at the low of the lowest in Europe. At a level not sustainable for some of the players for long.”

This, he predicts, will mean further consolidation in the French telecoms market to follow the merger deal between SFR and Numericable.

“Bouygues is facing a real challenge. In my view, they have a standalone plan, but that will probably lead them to restructuring the company massively with quite a social impact,” he said.

“So I understand that they would also look at other options including finding an understanding with the other players such as network sharing or a merger. I think they are still assessing the options, but they need to make a decision quite quickly.”

The merger between SFR and Numericable would have a “limited indirect impact” on Orange’s wholesale revenues, since the mobile operator would have less need to use its fixed line network. But he is not worried about increased competition from the merged group, even if he will seek to level the regulatory position with competition authorities.

“SFR and Numericable will be a powerful convergent player. SFR is a good brand, much better than Numericable, but Orange will remain the leader in all the markets.”

More broadly, Mr Richard detects a change in tone among European politicians about the telecoms sector, which has been hamstrung by restrictions on mergers as well as cuts to revenues from roaming and connections, according to executives.

He said the telecoms sector was no longer regarded as just a “mine for taxes” but something that needed to be nurtured to ensure global competitiveness. This view has been reinforced by recent support for telecoms consolidation by European Commission presidency hopeful Jean-Claude Juncker and German leader Angela Merkel.

Orange to protest against Numericable-SFR deal

Orange, France’s largest telecoms group, will complain to the competition authorities about tax and regulatory concerns caused by the merger between Numericable and SFR, its Vivendi-owned rival, write Daniel Thomas and Adam Thomson .

The £14bn deal will be the start of a period of French telecoms consolidation, according to Stéphane Richard, chief executive, as companies battle to survive a drop in prices over the past two years.

Read more

While French politicians failed to block the takeover deal by Numericable of SFR, there is a tide of opinion that the decision to introduce a fourth operator into the market was a mistake and should be reversed.

Mr Richard has, however, been “relatively disappointed” by the overall package of telecoms reforms overseen by Neelie Kroes, Europe’s digital commissioner. He hopes that the next commissioner following the elections in May will be more supportive of building a strong telecoms sector for the digital economy of Europe.

Mr Richard’s own position as chief executive of Orange was extended last month by the board, which is expected to be ratified by shareholders at the company’s general meeting.

He is still under investigation in a long-running fraud inquiry involving businessman Bernard Tapie when he was chief of staff of former French finance minister Christine Lagarde. “I reject clearly and totally the accusations regarding my personal involvement in this matter,” he said, adding that there was no update on the investigation.

He said that he was not worried about the outcome of the inquiry, although he noted that he “would not advise any friends to take a position in the government” in future as “it becomes really risky”.

Orange is, however, coming to an end of its bombastically named “Conquest 2015” strategic plan, which he admits will fall short in a couple of areas but only as a result of the unexpected changes in the telecoms market in the period.

For example, an objective to reach 300m customers in the emerging markets will probably miss by 20m-30m, but he says that the right objectives were addressed in the plan such as network improvement, 4G rollout and employee conditions.

“We have made a lot of progress, probably not as much as we would have liked. But the situation with the industry in Europe and big change in French market can explain that we were not position to do as much as we could have done.”

Meanwhile, the long-mooted merger of Deutsche Telekom and Orange has not moved closer to being a reality, even if Mr Richard points out that the narrowing of the valuations between the two would make it easier.

“It is clearly not an option in the short term, not because of competition but because of the current situation of both companies. Also, market values of both companies would make it difficult to have merger of equals, which would need to be a precondition.

“Now, with the recent recovery in share price, the gap has reduced a lot . . . but still not in the right ratio But you can have some changes; if they sell the US business to Sprint, it can change the situation.”

Nelson Peltz's Trian is stepping up its fight against Pepsi's Indra Nooyi. She's built a "culture of sycophants."

Ed Garden, the chief investment officer of Peltz's Trian Fund management, says Pepsi's CEO Indra Nooyi has mismanaged the company and had built a "culture of sycophants."

"What they need are honest, dynamic managers," says Garden. "Instead they have a spin-machine."

Peltz got interested in Pepsi (PEP) about a year ago, and his firm now owns just under 1% percent of the company, worth around $1 billion. Earlier this year, he proposed a plan to break up Pepsi by splitting up its beverage and snack divisions. Pepsi rejected the plan a little over a month ago. Peltz has since fired back that they didn't give his idea enough thought.

Now it appears Peltz is going on the attack against Nooyi. On Wednesday, speaking at the SALT hedge fund conference in Las Vegas, Garden said Nooyi is "suffocating" the company. Trian's main beef is that Pepsi spends $1.1 billion a year on management. Garden said that is mostly corporate waste. Breaking up the company would bring back focus and lower costs, he says.

More: Falling soda sales: Not a trend, but a fundamental shift

Many Pepsi defenders think Nooyi has done a good job. The stock is up 5% this year, which is better than the market. In its most recent quarter, Pepsi's profits were up 13%. Still, that doesn't seem to be enough to satisfy Peltz, who appears to be looking for a change at the top.

"The current CEO has made a major mistake," says Garden. "She's built a huge bureaucracy."

EU's Barnier: Will examine legality of French decree on foreign takeovers under EU law

- French decree could be a possible limitation on free movement of capital 

- France must notify the measures to the EU 

- EU rules do permit protection of strategic and essential assets 

- National measures must not lead to protectionism 

**Note on May 14th (FR) France govt said to have issued decree to prohibit foreign takeover of strategic firms - financial press - France Industry Min Montebourg said the new 'blocking' measures (adding 5 sectors to the current 11) are considered strategic; considers Alstom as strategic - French press interview

“The market is dangerous right now,” said Tepper, who gained a reputation in late 2008 for his prescient bet that US banks would survive the financial crisis. Last year, his $20 billion Appaloosa Management distressed-debt hedge fund earned a return of almost 40 percent, net of fees — enough to give Tepper a personal $3.5 billion payday.

But the good times could be coming to an end, he said, adding it’s “nervous time.”

Central banks are too complacent these days, Tepper said in a one-on-one interview here with Anthony Scaramucci, the founder of SkyBridge Capital at the SALT conference — the annual get-together of the hedge-fund sector’s heavy hitters that also draws movie stars and politicians, who mix it up with Wall Street’s brightest stars in the freewheeling atmosphere of this desert casino town.

Tepper said the European Central Bank “better ease in June” given the low level of inflation there. “If they don’t, it may be too late,” he warned.

While most of the financial world, and central bankers, have focused on inflation, he said deflation could be worse, pointing to the tepid economic growth more than five years after the financial crisis.

“I’m not saying go short,” he told the investors in the audience. “I’m just saying don’t be too frickin’ long right now.”

Tepper, known for his salty language, cleaned it up for the crowd until he told a story about how his fund’s recent winning streak followed his decision in 2008 to make sure all food banks, shelters and pantries in his home state of New Jersey had enough money to keep going.

“So you believe in karma?” asked Scaramucci.

“Are you f–king kidding me? Of course I believe in that sh-t” replied Tepper.

Tepper started his hedge fund in 1992 after a stint helping put Goldman Sachs’ junk bond operation on the map. The 56-year-old investor, who proudly touts his “inner city” roots, was considered too rough to be named partner. “I couldn’t stand that place,” he said, so he struck out on his own and starting lining up investors for a hedge fund.

An investor who gave him $1 million in 1992 would have $149 million today — one of the best returns in the industry.

The French government is understood to be trying to set up an alternative to the proposed EUR 12.35bn sale of the energy operations of Alstom to listed Connecticut-based conglomerate General Electric (GE), French weekly La Lettre de L’Expansion reported. The unsourced report said that French Finance and Economy Minister Arnaud Montebourg is believed to be busy creating a consortium of French companies that could involve industrial groups Areva, Thales and Safran, as well as state-owned financial services group Caisse des Depots et Consignations (CDC). The report claimed that Thierry Breton has been acting as the adviser to Montebourg on that matter.

This development was also reported in daily Les Echos, which referred to comments made by Thales chairman and chief executive Jean-Bernard Levy, who denied that his group was involved in the matter and that Montebourg had contacted Thales.

He then added that Thales was looking for opportunities to acquire businesses, especially companies operating in the railway signaling sector.

Source La Lettre de l'Expansion, Les Echos

US Market closed Lower, Small cap leaded the move ( Russel 2000 -1,6%), Out of the five largest sectors that represent more than 70.0% of the S&P500, consumer discretionary (-1.1%), financials (-0.8%), technology (-0.6%), and industrials (-0.8%) lagged throughout the session, while health care (unch) displayed relative strength thanks to modest gains in biotech. The iShares Nasdaq Biotechnology ETF (IBB 231.41, +0.90) advanced 0.4%. The weakest sector of the day—consumer discretionary—suffered from noteworthy losses among apparel retailers. Shares of Fossil (FOSL 100.00, -11.45) tumbled 10.3% after the company's cautious guidance overshadowed its earnings beat. Volume were belwo average @ 600mil shares... Japan Q1 GDP grew at a 3-year high of 5.9% on annual basis, as consumers rushed to make advance purchases before the Apr 1st start of higher sales tax and businesses invested generously...- Shanghai Composite remains under pressure on renewed concerns over China's

rate of growth in the wake of disappointing April economic data. China National...Nikkei -1,07% HS+0,35%...Shanghai -0,70%

Eur$ S&P Fut flat European fut -0,10%

Macro

- French Govt Publishes Decree on Foreign Investment, French Decree Lets Govt Block Some Foreign Takeovers

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