Bouygues Negotiates $2.5 Billion Mobile-Asset Sale to Iliad

Bouygues SA (EN), seeking to preempt antitrust concerns over its proposed wireless merger withVivendi SA’s (VIV) SFR, is in talks to sell its network and some spectrum to Iliad SA (ILD) for as much as 1.8 billion euros ($2.5 billion). The exclusive negotiations mean Bouygues Telecom can make its case to the French Competition Authority “from the outset with measures designed to maintain a competitive market for the benefit of consumers,” Bouygues said yesterday. Iliad, the discounter selling mobile packages under the Free brand, said it will finance any deal with existing resources and debt, without the need to raise capital. The talks signal the construction-to-media conglomerate is making a push to avoid a lengthy review by the competition watchdog over a deal that would create a carrier with more than 21 million subscribers to rival market leader Orange SA. (ORA) Bouygues and Altice SA (ATC) have begun informal meetings with French officials as each side seeks to convince Vivendi to choose its bid for SFR, France’s second-largest phone company, people familiar with the talks said. Bouygues, bidding against Altice and its Numericable unit for SFR, said last week its offer -- 10.5 billion euros in cash plus its Bouygues Telecom unit -- would value the Vivendi asset at 14.5 billion euros, or about $20 billion, before synergies with its own mobile unit.

Photographer: Balint Porneczi/Bloomberg

A logo sits outside the headquarters of Bouygues Telecom, a unit of Bouygues SA, in Paris.

Bouygues shares rose 7 percent to 32.20 euros at 9:17 a.m. in Paris, taking their gains to 12 percent since its March 6 bid. Iliad jumped 13 percent to 213.70 euros for a 44 percent increase since the beginning of this year.

‘Potential Upside’

“The market is not yet factoring in the potential upside from a SFR-Bouygues deal,” Barclays Plc analysts led by San Dhillon wrote in a note. Iliad said today its 2013 profit rose 42 percent to 265 million euros, as sales climbed 19 percent to 3.75 billion euros. The carrier said it aims to have a 25 percent share of the French mobile-phone market, from 12 percent at the end of December, without giving a specific timetable. Assets under discussions between Iliad and Bouygues include Bouygues’ wireless network and some of its spectrum in 2G, 3G and ultra-high-speed 4G technology. Barclays estimates Bouygues’ network includes 15,000 towers and Iliad’s about 3,000. Bouygues also holds larger quantities of spectrum. Iliad is also open to a looking at Bouygues as a merger target in the event Vivendi chooses to combine SFR with Altice, according to a person with knowledge of the matter, who asked not to be identified discussing internal deliberations.

Niel’s Bet

Gaining new network infrastructure from Bouygues could allow Iliad, founded by entrepreneur Xavier Niel, to stop buying capacity from Orange, for which it pays between 500 million euros and 700 millions euros each year. Altice’s proposal also values SFR at about $20 billion and includes a mixture of debt, cash and equity, people familiar with the matter have said. Patrick Drahi, who controls cable operator Numericable SA through Altice, is arguing that his plans wouldn’t reduce the number of mobile carriers in France and would accelerate the deployment of ultra-high-speed networks, the people said. The group that succeeds in wooing France’s Industry Ministry and Competition Authority stands a good chance of convincing Vivendi to accept its offer. The case is also a precursor of future battles over telecommunications mergers elsewhere as European phone companies look to consolidate to cope with rising network costs and slow growth.

Peugeot Precedent

Spokesmen for Drahi and the Competition Authority declined to comment on March 7. Opinions within the French government may vary. Industry Minister Arnaud Montebourg, who has criticized job cuts at companies including Peugeot SA during his tenure, is most concerned with protecting employment and the strength of French companies, one of the people said. Montebourg is open to a possible reduction in the number of mobile carriers, provided robust competition continues, he told newspaper Le Parisien in an interview published yesterday. The Competition Authority, which must sign off on any merger, is more concerned about preserving the broadest range of consumer choice in the mobile market, the people familiar with the talks said. The agency plans to also examine issues related to fixed and broadband telecommunications, as well as media-content production and distribution, because billionaire executive Martin Bouygues controls TF1, France’s largest free television channel by audience, and Vivendi owns Canal Plus, the biggest pay-TV channel, two of the people said.

German Case

A Drahi bid would probably be approved more quickly than the Bouygues offer, two of the people said. It may take the Competition Authority nine months to fully examine the sale of SFR, with exact timing depending on the offers, president Bruno Lasserre told Le Figaro. In its discussions with regulators, Bouygues will argue that a reduction to three operators in the French market from four is different from that in Germany, where European Union regulators are challenging the merger of Telefonica SA and Royal KPN NV’s local units, the people said. The key distinction, in the company’s view, is that a French deal would leave intact Iliad -- which two years ago started offering packages as cheap as 2 euros a month -- while the German transaction will absorb KPN’s discount-focused E-Plus division, they said.

Media Focus

A drawn-out regulatory process may be a challenge for Vivendi, which has announced a shift in strategy to refocus on media assets and plans to split SFR and list it separately by July 1. The company is due to submit its plans to shareholders at a June 24 annual meeting. “By accepting the Bouygues offer, Vivendi would also take the risk of delaying its strategy,” Stephane Beyazian, an analyst in London at Raymond James Euro Equities, wrote in a note. “We continue to see a SFR plus Numericable scenario in pole position, with antitrust concerns and Vivendi’s timing more likely to prevail.” Source :  http://www.bloomberg.com/news/2014-03-09/bouygues-in-talks-to-sell-part-of-mobile-phone-network-to-iliad.html