By Ruth Bender and Inti Landauro
PARIS-- Bouygues SA's rebuttal of Patrick Drahi's offer for its
telecom unit sent chills through the French telecom sector on
Wednesday as the prospect of the French market slimming to three
mobile rivals from four moved further from the horizon.
Bouygues' board of directors on Tuesday unanimously decided not
to pursue the proposal from Mr. Drahi's firm, Altice SA, which
according to people familiar with the matter, offered to pay around
EUR10 billion ($11.3 billion) for rival Bouygues Telecom.
The decision put the brakes on consolidation in the French
market that key rivals, including Bouygues, Orange SA and Iliad SA
have long clamored for and raises broader questions about the
likely pace of deal-making activity in Europe. While Altice, which
already owns the number two mobile operator in France, would have
benefited from creating more cost savings in a merger, a deal would
have rippled further too.
Low-cost operator Iliad SA would have been able to acquire some
of Bouygues's spectrum to build out its network faster, while
market leader Orange would have benefited generally from less
competition.
Bouygues's reasons not to pursue the offer--including high
execution risks, job losses and the potential for Bouygues to boost
profits on its own--fell short for investors. "We believe these
arguments aren't very convincing," said ING analyst Emmanuel
Carlier.
Chairman and Chief Executive Officer Martin Bouygues defended
his board's decision. "Not everything is a question of money," Mr.
Bouygues told French radio, alluding to his personal attachment to
the telecoms company he set up in 1994 after taking over the
industrial conglomerate from his father.
Mr. Bouygues said regulators would have imposed heavy remedies
in a merger, which would have made the deal unviable. "I don't see
how Mr. Drahi could set up serious financing and at the same time
assume all the remedies," he said. "The financing wasn't sorted out
at all."
Altice hasn't officially responded to the collapse of the deal,
but a person familiar with the matter said the offer was fully
financed through a syndication of banks.
The decision is a setback for Mr. Drahi, who has been on a
deal-making blitz on both sides of the Atlantic. Having snapped up
cable assets in France over the years, he burst onto the mobile
scene in a big way last year with his purchase of SFR from Vivendi
SA. He beat Mr. Bouygues in the bidding and began cutting costs
drastically, quickly lifting profit margins.
This appears to have played a role in Mr. Bouygues' decision.
People familiar with the matter said the executive didn't want to
sell to Mr. Drahi. Other people say Mr. Bouygues was concerned that
he didn't want to take the risk of his telecoms unit suffering
during a lengthy antitrust review, the cost of which he would have
carried if the operation was blocked.
European regulators have allowed mergers in recent years that
have lowered the amount of telecom rivals in countries such as
Germany and Ireland. Operators have been eager to merge to save
costs in heavily regulated and competitive markets. In all deals,
antitrust authorities imposed remedies to assure that competition
would be maintained, such as forcing companies to sell assets to
allow new entrants to the market.
The proposed merger between Bouygues Telecom and Altice's
Numericable-SFR would have been examined by France's antitrust
authority, a process that could have lasted more than a year.
Mr. Bouygues rebuffed questions that political pressure
influenced his decision, after French Economy Minister Emmanuel
Macron in particular took a hard line against Mr. Drahi's offer.
Bouygues, besides owning Bouygues Telecom and TV channel TF1, makes
more than 70% of its revenues in the construction business, which
often depends on government contracts.
Despite Bouygues's refusal, some analysts reckon the chapter of
French consolidation isn't closed forever.
"Longer term, possibly one year from now, we could see M&A
taking place, with either Bouygues or Numericable-SFR in a tougher
spot," said Exane analyst Antoine Pradayrol.
Write to Ruth Bender at Ruth.Bender@wsj.com and Inti Landauro at
inti.landauro@wsj.com
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