France Télécom Readies Lifeboat

France Télécom was last night putting the finishing touches to a €15bn (£9.4bn) rescue fundraising - the largest to date in European corporate history - backed by the French government.

The move is expected to cost the job of chief executive Michel Bon, who has run the telecoms group for seven years. His replacement is believed to be Thierry Breton, head of Thomson Multimedia.

Mr Bon, a pillar of the French business establishment, will become the latest high profile executive to be brought low by a series of failed acquisitions. He will join ousted European chief executives such as Vivendi boss Jean-Marie Messier and Deutsche Telekom chief Ron Sommer.

Backing for the rights issue will be split between the French government - which still owns 55% of the company - and at least five banks, including ABN Amro Rothschild, BNP Paribas and Société Générale.

The banks will underwrite €6bn of the fundraising while the French government is expected to guarantee €9bn for the business.

Yesterday a spokesman for EU competition commissioner Mario Monti suggested that, as long as the French government acted as an ordinary investor, the financing would not fall foul of Brussels' rules against state aid.

The fundraising will, however, only make a small dent in France Télécom's €70bn of debts, amassed by buying up businesses such as mobile phone company Orange, international telecoms network Equant and British internet service provider Freeserve.

The company is expected to announce a series of asset sales alongside its interim results today.

Union officials expressed fears that there could also be job cuts among the France Télécom workforce.

The company's 21-strong board of directors was in talks last night at the company's Paris headquarters, completing plans for the fundraising and deciding which assets will have to go in order to save the once powerful communications group.

Last night sources close to Orange said they would be surprised if the mobile phone firm was among the businesses placed on the block.

But France Télécom is expected to announce today that it is pulling out of German mobile phone venture Mobilcom, in which it has a 28.5% stake.

The two companies have been arguing about who should fund Mobilcom's future since the start of the year.

Mobilcom's chief executive, Thorsten Grenz, yesterday admitted that the business, which employs more than 5,000 people, will be forced into bankruptcy if France Télécom pulls the plug.

France Télécom's board is likely to give little weight to a letter released yesterday by Mobilcom's former boss, Gerhard Schmid, in which the French company promises to invest €10bn in Mobilcom over 10 years. The letter dates from April 2000.

While Mr Schmid believes that the funding of Mobilcom - which wants to spend €1.3bn on a German 3G network - is a question of honour, France Télécom needs to conserve cash.

Worries about the discount on any rights issue pushed France Télécom's shares lower in Paris yesterday.