Report: SFR, Free Mobile discuss possible merger

French operators SFR and Iliad's Free Mobile are in talks about merging their mobile operations, according to a report in the French newspaper Les Echos, which cited unnamed sources.

Niel

The report said that Jean-René Fourtou, the chairman of SFR-owner Vivendi's supervisory board met in July with Iliad executives, including founder Xavier Niel, to discuss the possibility of a merger. However, the talks have not progressed further to cover technical integration issues, the report said.

Free Mobile has denied any contact with SFR or Vivendi with regard to a merger, according to Les Echos. Vivendi and Iliad declined to comment, according to Reuters.

Analysts from the French investment bank Natixis say the merger speculation is not just rumour. "This may seem surprising at first," the analyst told La Tribune, accepting the potential political, regulatory and cultural barriers, "but would create significant value for Vivendi."

Natixis believes that a merger of SFR and Free Mobile would create synergy saving of at least €1.3 billion. Analysts at the bank see a merger of the two operators as a decisive move, creating a worthy rival to France Telecom's Orange and providing Vivendi with a greater return.

Potential saving could, according to the French bank, come about if Free Mobile extracts itself from the network roaming deal it has with France Telecom, which is costing Free around €500 million per year. Free Mobile could then use SFR's network, including its planned LTE deployment, a technology which is not covered by the Orange deal, according to Les Echos.

SFR has recently been linked with merging with French cable company Numericable, where technical discussions are said to have reached an advanced stage. If this deal goes ahead, Vivendi would own about 40 per cent of the enlarged company and receive up to €8 billion in cash, leaving the merged SFR-Numericable with debt of around €10 billion to €12 billion, according to Telecom Paper. The deal would also enable Vivendi to reduce its €14 billion debt to €6 billion, with Numericable paying Vivendi around €1 billion a year in dividends.

For more:
- see this Les Echos article (translated via Google Translate)
- see this La Tribune article (translated via Google Translate)
- see this Telecom Paper article (sub. req.)
- see this Reuters article

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SFR results hurt by domestic price war; Vivendi ducks break-up question
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