Deal Reporter
Altice lack of debt guarantees factored into Bouygues rejection
Altice’s [AMS:ATC] lack of debt financing guarantees were among the factors that led Bouygues [EPA:EN] to reject its EUR 10bn proposal to acquire Bouygues Telecom, a source close to the deal said.
Altice head Patrick Drahi’s proposed offer would have been largely funded by borrowing. While banks were lining up to provide financing, lending agreements were only given in principle, the source and a person close to the situation said.
This compounded perceived antitrust risks as Bouygues could not be sure banks would finance the deal if remedies were severe, the person said. Entering negotiations with Altice would have placed too much of the execution risk on Bouygues, the source and person said.
The deal would have required major concessions, with both Bouygues and Altice having to give up part of their 3G and 4G networks, a lawyer following the situation said.
But, the financing was not the main issue Bouygues had with Altice’s proposal. Job cuts, and different management styles when it comes to employment issues is seen as an insurmountable issue, the person said.
Drahi’s cost-saving measures, currently being imposed on SFR, which Altice acquired last year, are being viewed with disdain, the person added.
But, any deal between French telcos is seen to be off the table for the time being as the national telecoms regulator is expected to kick off a spectrum auction at the end of the year, the source said.
Altice’s failure to show it had taken the cost of participating in the spectrum into account in its offer was also seen as a concerning omission, the person said.
JP Morgan, BNP Paribas and Morgan Stanley were understood to be leading debt talks, but as many as 10 banks were in negotiations with Altice regarding financing, the source said.
The mix of banks was seen to be in flux as there was a chance some could lose confidence in the deal, the source said. Altice’s existing debt level was also seen as an issue, the person said. As of 31 December 2014 Altice's consolidated pro-forma net debt stood at EUR 24bn, compared with net debt of EUR 6,255bn in 2013. Consolidated pro-forma net leverage including synergies stood at 4.4x at 31 December 2014.
The French economy minister Emmanuel Macron was reported on Monday (22 June) as saying Drahi’s telecommunications empire was expanding too quickly and taking on debt too fast.
But, Altice was considering an equity raise in light of the Bouygues approach to prevent its leverage ratios from exceeding around 5x, the source said. It had not decided on how much of the total financing for Bouygues Telecom the equity raise would contribute, the source said.
Bankers and a minority shareholder previously told this news service that an equity issue at subsidiary Numericable would be the most viable financing route for a bid for Bouygues Telecom.