The German government yesterday said it would step in to avert insolvency at MobilCom, the mobile phone company abandoned by state-controlled France Telecom on Thursday night.
The dramatic gesture, aimed at saving 5,500 jobs, comes as German Chancellor Mr Gerhard Schröder prepares for a close fight in elections next weekend.
Mr Torsthen Grenz, MobilCom chief executive, said the company would file for insolvency next week after France Telecom, one of the world's most indebted companies, decided on Thursday to walk away from its partner.
The French group reported a first-half loss of €12.2 billion after charges of €10.8 billion, mostly relating to MobilCom. That wiped out its shareholder equity and forced the resignation of Mr Michel Bon, its chairman.
The German government, which criticised France Telecom's decision, said the justice ministry would provide MobilCom with legal assistance in its dispute with France Telecom.
People close to MobilCom said the economics ministry was considering credit guarantees to help it raise emergency funding.
Both Mr Schröder and Mr Edmund Stoiber, his right-wing challenger, have intervened on behalf of companies including construction firm Philipp Holzmann, engineers Babcock and the Kirch media group to save jobs - a key political issue in Germany.
Mr Werner Muller, German economics minister, was to meet bankers and officials from the state of Schleswig-Holstein, where MobilCom is based.
"We make business decisions. We are not here to make political decisions," said Mr Jean-François Pontal, chief executive of Orange, France Telecom's mobile arm. Orange has assumed ownership of the state-controlled operator's €28.5 per cent stake in MobilCom.
Mr Gerhard Schmid, MobilCom's founder and largest shareholder, said he would sue France Telecom for damages, citing the terms of a 2000 co-operation agreement forcing the French group to fund its German partner for up to €10 billion. MobilCom said it was considering a similar suit.
Mr Schmid, who controls just over 50 per cent of MobilCom with his wife, stands to lose the entire value of his stake. The shares, which peaked at €175 in March 2000, were trading at €1.11 late yesterday.
While it searches for a replacement for Mr Bon, the French government, which owns 56.6 per cent of France Telecom, is preparing to help strengthen the operator's balance sheet. Senior France Telecom executives yesterday said they were assuming a government-backed rights issue was "imminent". Shares in France Telecom, which have lost more than 75 per cent of their value this year, dropped a further 2.6 per cent yesterday to €10.35. - (Financial Times Service)
