Vivendi opts to hold exclusive talks with Altice on SFR

Vivendi said it has decided to enter into exclusive negotiations with Altice on the acquisition of SFR for a period of three weeks, in what will come as a blow to Bouygues as the two companies compete to buy SFR from the telecoms and media giant.

 SFR, Altice, Bouygues, Orange, Vivendi

Patrick Drahi
Copyright Aude de Cazenove REA

In a statement, Vivendi's supervisory board said it considers the offer from Altice to be the most pertinent for the group's shareholders and employees, with the opportunity for effective execution.

"The offer also achieves Vivendi's objective to rapidly become a leading European media and content player and develop SFR as a dynamic leader in high speed fixed and mobile telephony," Vivendi added.

The Altice offer comprises an €11.75 billion ($16.3 billion) payment to Vivendi and a 32 per cent share in the equity of the combined listed entity. It also provides Vivendi with pre-determined exit conditions.

At the end of the three weeks, Vivendi said the supervisory board will meet again to examine the next steps and to decide if it should put an end to the other options that were being considered.

On the table at the meeting on Friday were offers from Bouygues, the construction and telecoms group that wants to merge Bouygues Telecom with SFR to create a new mobile behemoth that outguns even Orange France, and Altice, which plans to merge SFR with its Numericable cable unit to create a fixed and mobile powerhouse. A third option for Vivendi is to continue with plans to float SFR via an initial public offering.

Vivendi's board faced some tough choices, especially after Bouygues and Altice sweetened their offers for SFR earlier this week. Bouygues, which has also reached a provisional deal to sell its mobile network to Iliad if it wins approval to buy SFR, said it has increased the cash part of its offer to Vivendi by €800 million to €11.3 billion, while also lowering Vivendi's stake in the new merged entity to 43 per cent from 46 per cent.

"This new offer values SFR at €15.5 billion pre-synergies and at nearly €20 billion factoring in all the synergies," Bouygues said in a statement.

Decisive factors that will have swayed Vivendi opinion include the size of the stake that Vivendi would hold in a merged entity, the regulatory and political risks, as well as which billionaire the company would prefer as a partner: Martin Bouygues, the CEO of Bouygues and son of the company's founder, or Drahi, who built Altice from scratch after he left cable company UPC in 2001-2002.

For Vivendi, accepting either offer would mean scrapping a plan to distribute SFR stock to shareholders by July 1, Bloomberg noted.

If SFR is sold to either Altice or Bouygues, France will face its second major shake-up of the mobile phone market in two years: the first came in early 2012 when Iliad launched Free Mobile onto the market and introduced a sub-€20 mobile plan that forced Orange, SFR and Bouygues Telecom to follow suit.

The Altice/Numericable offer is expected to face an easier regulatory process because the market would still retain four mobile operators. Bouygues is well aware of this and the Iliad deal was a pre-emptive strike to avert regulatory concern.

Ahead of the meeting on Friday, Industry Minister Arnaud Montebourg told Europe1 radio station he understood that Vivendi prefers the Altice offer, according to Bloomberg. Montebourg reiterated that he prefers the Bouygues bid because it would calm what he called "destructive competition" in France, and he also expressed concerns that an Altice/Numericable acquisition would bring a high level of debt to the merged entity.

Naturally, Orange has expressed preference for the Bouygues deal: the operator would like nothing better than a return to three mobile operators and a resumption of what it has described as a more level playing field.

For more:
- see this Bouygues statement
- see this Vivendi statement
- see this Reuters article
- see this Wall Street Journal article
- see this Bloomberg article
- see this separate Reuters article
- see this separate Bloomberg article

Related Articles:
SFR bidder Altice hails need for mobile and fixed convergence
Bouygues cooks up Iliad network deal in bid to secure SFR merger
Bouygues hails need for consolidation, as the battle for SFR commences
Reports: SFR bidding war heats up as Vivendi sets deadline
Report: Numericable plans €11B cash bid plus almost €4B in other assets for SFR

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