France Telecom said today it would offer €3.9 billion to buy out minority shareholders in Wanadoo to take full advantage of surging profits at the Internet service provider.
The bid, which it said represents a 17.2 per cent premium to Wanadoo's Friday closing price of €7.56, values Europe's second-biggest ISP at around €13 billion and would give the parent company access to its cash pile of €2 billion.
France Telecom chief executive Mr Thierry Breton aims to make the state-controlled firm's debts of about €44 billion more manageable by boosting cashflow from subsidiaries.
The former monopoly bought out minorities of its mobile arm Orange last September.
Shares in France Telecom fell 3.4 per cent to €21.99 while Wanadoo stock leaped 14.8 per cent to €8.68 by 11.49 a.m.
France Telecom said buying the 29 per cent of Wanadoo it does not own would add €150 million annually to its earnings before tax, interest, depreciation and amortisation.
But analysts said the offer would dilute the parent company's earnings per share and disagreed on how sustainable the cost savings will be with France Telecom running a single Internet access operation under one roof.