The battle for French operator SFR took a new turn over the weekend after Bouygues said it had reached an accord to sell its mobile network and some frequencies to Iliad if its offer to merge Bouygues Telecom with SFR is approved.
Battle for SFR escalates
Bouygues and Iliad confirmed they had entered into exclusive negotiations over a deal worth up to €1.8 billion ($2.5 billion), which represents an early manoeuvre by Bouygues group to fend off competition concerns relating to its plan to buy Vivendi's SFR.
Both Bouygues and Numericable shareholder Altice last week launched bids for SFR that valued the operator at around €14.5 billion, but Bouygues is expected to face greater regulatory scrutiny since it operates in the same market sector as SFR and the move would reduce the number of French mobile operators from four to three.
"I welcome this agreement, since it means we can go to the Competition Authority with a plan for a merger between SFR and Bouygues Telecom which now includes measures that ensure strong, infrastructure-based competition on the French mobile phone market," said Bouygues CEO Martin Bouygues.
If successful, Bouygues Telecom would gain the mobile and fixed networks of SFR, while Iliad would secure much-needed mobile assets for the buildout of its Free Mobile services. Indeed, the Xavier Niel-owned operator said the deal would also include LTE frequencies, which would help Free close the gap with its rivals. France's fourth mobile operator currently uses Orange's network to support its 3G services, but Orange has made it clear that it is not interested in extending the Free national roaming deal to LTE.
Orange has welcomed the latest move towards greater market consolidation, saying it would address the current "destabilisation of the market we've been calling attention to for several months" and could provide for a more level playing field.
ABI Research practice director Joe Hoffmann noted that proponents of a Bouygues acquisition of SFR should nonetheless prepare for serious headwinds: "The resulting telecom giant represents nearly 50 per cent subscriber market share--enough to alarm the anti-trust regulators," Hoffmann said in a research note. "The resulting duopoly with Orange would control nearly 90 per cent of French mobile telecom subscribers--not a good sign."
Hoffmann added that the change in market power concentration would go beyond "the ill-fated AT&T acquisition of T-Mobile US".
As yet it's far from clear whether Bouygues or Altice will win the SFR prize, but unnamed sources told Reuters that Vivendi has begun the process of reviewing the two offers. France's competition watchdog has also reportedly said that the probe into the offers could take nine months. Fitch Rating believes it could take nine to 12 months for regulators to approve a deal, and that the transaction could stay in the hands of French antitrust authorities rather than pass to the European Commission.
Bouygues and Altice have begun informal proceedings with French regulators, Bloomberg reported.
Vivendi, which is gradually offloading its telecoms assets to focus on its media business, also still has the option of pursuing an initial public offering for SFR. However, an assessment by Fitch Rating said the group's credit profile is likely to benefit more from a merger of its telecoms business than from an IPO.
Fitch said a merger between SFR and Bouygues Telecom would be better for Orange than an SFR-Numericable tie-up. "Orange's French mobile business (2013 revenue down 10.3 per cent) has been hit by intensive price competition over the last 18 months. A reduction of mobile operators to three from four could reduce competitive intensity, not just in mobile but also in France's fixed market," the ratings agency said.
Meanwhile Iliad reported that its market share has now reached 12 per cent in France, while revenue in 2013 increased by 19 per cent to €3.7 billion. EBITDA rose 31 per cent to €1.2 billion, while net profit was up 42 per cent to €265 million.
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