MERGERMARKET.COM
French telecom company Bouygues [EPA:EN] may be preparing to informally approach Altice [AMS:ATC] to see if it is prepared to sell French subsidiary SFR, several bankers speculated.
The move may be spurred by comments made yesterday (22 May) by Sebastien Soriano, the Head of French telecoms regulator (Arcep) to French daily Le Monde, where he stated he is now in favour of telecoms consolidation in France.
Bouygues' long-term adviser, Rothschild, has been exploring the potential acquisition of SFR, a source familiar with the situation said. Rothschild declined to comment.
“Further to recent market rumours on the French telco consolidation, Bouygues reaffirms it has already indicated that it is studying on a regular basis the different hypothesis for the market evolution,” a Bouygues spokesperson told this news service.
"For now, Bouygues confirms that no contact with any other telecommunication operators has been initiated," this person added.
The last consolidation attempt in France's telecoms sector failed in April 2016 when Orange [EPA: ORA] tried to acquire Bouygues. At that time, the opposition of French economy minister Emmanuel Macron and the complicated competition review led to Orange pulling its plans.
With Iliad’s [EPA:ILD] telco operations Free Mobile registering disappointing performance for 1Q18 and Altice in the midst of a restructuring, it is clear Arcep's comments came to show the regulator is keen to push for stronger competitors in France that can invest in new frequencies and 5G, the source familiar and a source briefed said.
Bouygues is now seen as the most likely acquirer in French telecoms, a person familiar, the source briefed and a fund manager agreed.
Any approach by Bouygues, however, would likely need to be backed by another investor, bankers said.
Last month, a newswire report citing sources familiar with the matter indicated Bouygues could team up with CVC Capital Partners to complete the acquisition of SFR.
Altice also remains a very reluctant seller, the sources and bankers said.
While SFR is now seen as the weakest player in the French market, it is unlikely that Altice CEO and Chairman, Patrick Drahi, would sell SFR in the midst of the group restructuring, the source familiar, two sector bankers and a person familiar with Altice said.
Drahi has already made it clear he does not want to sell SFR, the source familiar and the source briefed said.
SFR’s performance is also improving as seen in 1Q18 results, which makes a disposal increasingly unlikely, the bankers said. If SFR fails to improve further, Drahi could look to sell in a few years, the first banker said.
SFR generated EUR 1.9bn operating free cash flow for 2017 and is set to regain clients in 2018 so a sale now would not make sense, the person familiar with Altice said.
Another catalyst for the sale of SFR would be if Altice fails to reduce its EUR 55bn debt, the first banker said. But, as there are no immediate maturities, Drahi is under no pressure to sell, bankers pointed out.
This year, Altice launched a disposal process for 49% of its telco towers in France and 100% of its towers in Portugal, worth around EUR 2bn, as reported.
The sale of its Dominican asset would also be a way to reduce Altice’s debt this year, the source familiar said.
Altice did not respond to a request for comment.