Telecoms holding Altice and conglomerate Bouygues have submitted binding offers for a controlling stake in French mobile operator SFR.
Altice, owner of French cableco Numericable, confirmed the bid but did not disclose details. However TelecomFinance…
Telecoms holding Altice and conglomerate Bouygues have submitted binding offers for a controlling stake in French mobile operator SFR.
Altice, owner of French cableco Numericable, confirmed the bid but did not disclose details. However TelecomFinance understands that Altice is planning to offer €11bn to Vivendi. On top, Vivendi would obtain 32% of a combined SFR-Numericable.
Meanwhile, Bouygues has launched a seduction operation in the hope to win the bidding war and to combine mobile player Bouygues Telecom with its larger rival to create France’s dominating player and Europe’s seventh largest telco.
The industrial and telecoms conglomerate, which is owned by billionaire Martin Bouygues, is offering Vivendi €10.5bn (US$14.4bn) in cash and 46% of the merged entity.
The new company’s debt, fully underwritten by HSBC, would cover the acquisition financing as well as its operating needs.
Bouygues said the proposal values SFR at €14.5bn pre-synergies and €19bn post-synergies. Those synergies, the total value of which has been estimated at €10bn, are expected to translate into additional value of at least €15 per Bouygues share.
Bouygues Telecom and SFR already have a network sharing agreement in place, signed a month ago. Bouygues CFO Philippe Marien said in a conference call today that the €10bn synergies will be on top of those created by the existing partnership.
The SFR-Bouygues Tel ensemble is expected to be left with pro forma net debt of €8.3bn and an implied leverage of 2.3x EBITDA.
IPO post-merger
Under Bouygues’ offer, the conglomerate would keep a 49% stake in the combined operator while Vivendi would hold 46%. The remaining 5% would be owned by outdoor advertising company JC Decaux, already a 6.5% shareholder in Bouygues Telecom.
Post-merger, Vivendi will have the option to monetise up to 15% of its capital via an IPO, Bouygues said.
Vivendi announced its intention to list SFR last year. The operator’s CFO, Jean-Yves Charlier, repeated just days ago he was still hopeful for a market debut in early July.
However, industry experts have long speculated that the media conglomerate may go down the M&A route instead as it would allow it raise more money, given the stiff competition and declining prices in the French mobile market.
According to Bouygues, a merger between the two operators would create France’s top mobile network and second-largest fixed network behind incumbent Orange.
In Europe, the group claims the operator would be the seventh-biggest sector player.
Regulatory remedies
A horizontal merger between Bouygues and SFR would face a tough regulatory review as it would reduce the number of mobile operators in France from four to three and could lead to increased prices.
But Bouygues’ Philippe Marien said today the company is already considering remedies to address antitrust concerns, including offering greater infrastructure access to local MVNOs and selling some assets. The submitted offer includes plans for a capital increase and divestments estimated to be around €3bn. The CFO however stressed that Bouygues would not need to sell assets to fund the deal.
It has been speculated that the recent sharing pact between the two rivals could indicate that the French competition authority is now more open to the idea of consolidation than it was in 2013.
Bruno Lasserre, the chairman of the watchdog, told Le Monde last week that its answer to a merger could either be “no” or “yes but”.
Marien also stressed in the conference call that the EU regulator would not have a say about the proposed deal given that both Bouygues and Vivendi are French entities.
Altice bid: fewer regulatory risks, but lower offer
In comparison, a deal between Numericable and SFR is unlikely to face similar regulatory hurdles as the number of mobile players would remain at four – Orange, SFR, Bouygues Tel and Iliad’s Free Mobile.
The cableco’s parent has yet to disclose details of its offer. But it is understood that billionaire Patrick Drahi’s Altice is offering €11bn to Vivendi. The conglomerate would own 32% of the converged entity while Altice would hold 50% . To finance the deal, the holding is hoping to secure a €15bn credit line from a consortium of lenders and will launch a €3bn capital increase.
Leftovers from the financing and share increase would go towards investments outside of France. The merged SFR-Numericable is expected to hold €10.5bn worth of debt, equivalent to 3.1x estimated EBITDA. With such large debt, some industry watchers have however expressed concerns about Altice’s ability to fund SFR-Numericable’s investment needs going forward.
Both the owners of Bouygues and Altice met political authorities last week, pleding that their respective offers would not result in job cuts.
TelecomFinance has learnt that Orange, which is partly state-owned, would rather see SFR being bought by Bouygues than by Numericable. It fears that a converged entity would directly compete with Orange but would not be subject to the same regulation as the incumbent.
Although Vivendi had set 5 March as a submission deadline for bids, it is understood that the date was not set in stone. Other operators, such as Free, but also private investment firms might be tempted to enter the fray at a later stage.
