Michel Bon quits France Telecom as losses climb to record €12.2bn

Michel Bon resigned as chairman of France Telecom last night after the board of the debt-laden telecoms group failed to reach agreement on plans for an emergency refinancing.

Michel Bon resigned as chairman of France Telecom last night after the board of the debt-laden telecoms group failed to reach agreement on plans for an emergency refinancing.

But at a four-hour meeting late last night, the board did decide to stop funding France Telecom's affiliate MobilCom, in a move that is likely to force the German mobile operator into bankruptcy.

The French government, which owns 55.5 per cent of the former state monopoly, confirmed it had accepted Mr Bon's resignation, which he tendered during the meeting. His departure comes after a two-year acquisition spree that saw the French telecoms group pile up €69.7bn (£44bn) of debts.

France Telecom last night unveiled a record first-half loss of €12.2bn after making a €10.8bn provision to cover its exposure to MobilCom. Before interest, tax, depreciation and amortisation, the company said that its underlying earnings rose 13 per cent to €6.9bn.

The French government last night said it would name a replacement for Mr Bon in coming weeks. Sources close to the company yesterday said Thierry Breton of Thomson Multimedia remained the front runner for the post, despite a denial by Paris that he had agreed to step in. Noel Forgeard of Airbus has also been seen as a potential successor.

France Telecom had been widely expected to unveil a deeply discounted €15bn (£9bn) rescue rights issue today alongside its interim results in a desperate attempt to get its finances in shape. Mr Bon, who presided over the privatisation of the company in 1997, is believed to have been opposed to such a move.

Trade union representatives at France Telecom's board meeting last night said that although refinancing options had been discussed in detail, nothing had been finalised.

After the meeting, the French Finance Ministry announced it would help fund the company while a refinancing plan was agreed. "The government will bring its support to France Telecom in the execution of the plan and will contribute to the substantial strengthening of the company's balance sheet," the ministry said. The government is expected to subscribe fully for its share of new equity if a rights issue does take place.

An alternative plan could see the government extend a guaranteed loan to France Telecom, but this runs the risk of falling foul of European Union rules governing state aid to companies.

Alain Baron, of the leftist Sud union, said staff representatives at yesterday's meeting, who hold seven seats on France Telecom's 21-member board, had opposed any move to drive MobilCom into bankruptcy by withdrawing financial support. "Unfortunately this decision was not supported by the rest of the board," he added.

Bank debt at MobilCom, which is 28.5 per cent owned by France Telecom, is due to expire at the end of this month. German government officials have been in contact with their French counterparts in an attempt to avert an embarrassing collapse of MobilCom, which has 5,000 staff, ahead of German elections next week.

France Telecom itself is thought to have €3bn debt payments falling due in January and will need to refinance several more billion euros of debt later next year.

Although the company last night indicated that it will have €7bn in credit lines available by the end of this year, France Telecom is still believed to be working on plans for the €15bn equity issue, which a consortium of seven banks has agreed to underwrite. This would exceed its own €12.7bn market value and dwarf similar fund raisings by industry rivals. City sources indicated it could be priced at a 50 per cent discount to France Telecom's share price and on a three-for-one basis

Shares in France Telecom, which have lost 95 per cent of their value in the past two-and-half years, fell 3.7 per cent yesterday to close €10.63 ahead of the board meeting.