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Bouygues Turns Into Iliad Target After Losing SFR Bid: Real M&A
2014-03-19 23:00:01.5 GMT
(For a Real M&A column news alert: SALT REALMNA <GO>.)
By Marie Mawad and Francois de Beaupuy
March 20 (Bloomberg) -- After losing a bidding war for SFR,
France’s second-biggest mobile carrier, Bouygues SA’s best move
may be to turn from buyer to seller.
Vivendi SA agreed last week to start exclusive talks about
merging its SFR phone business with billionaire Patrick Drahi’s
Numericable Group, turning down a rival offer from fellow
billionaire Martin Bouygues’s construction and
telecommunications company. While the failed bid included an
agreement to have rival Iliad SA buy parts of Bouygues’s phone
business to preempt antitrust concerns, Iliad is open to
discussing a purchase of the entire Bouygues Telecom unit,
people with knowledge of the matter said.
Iliad, now France’s fourth-largest wireless operator, could
move into third place by buying Bouygues Telecom. Iliad’s 32
percent stock rally this year gives the company currency that
could come in handy for a deal, and its profit multiple is now
the highest of all large European telecommunications carriers,
according to data compiled by Bloomberg. Bouygues could get
about 5 billion euros ($6.9 billion) for the phone unit,
according to Societe Generale SA and Natixis, not far from the
market value of the entire company less than two years ago.
“Bouygues is back to the same situation it was in two
weeks ago, with a mobile market of four players and little
prospect for improvement,” said Benoit Maynard, an analyst at
Natixis. “The market will now be looking for a merger between
Iliad and Bouygues Telecom.”
Representatives for Bouygues and Iliad, both based in
Paris, declined to comment.
Competing Bids
Bouygues wanted to buy SFR to create a carrier of more than
21 million contract wireless customers, closing a gap with
market leader Orange SA. Vivendi preferred the proposal from
Numericable, France’s largest cable operator, which offered
11.75 billion euros in cash and a 32 percent stake in the
enlarged company. Bouygues had bid 11.3 billion euros in cash
and a 43 percent stake.
Iliad entered the mobile market in January 2012 and sparked
a price war by selling discounted wireless phone packages. The
company had 8 million clients at the end of 2013, or 12 percent
of the market. Buying Bouygues Telecom would bolster its
customer count by about 9.9 million subscribers.
“Such a bid from Iliad could become even more probable if
Bouygues steps up its aggressive strategy in the fixed broadband
segment, which represents Iliad’s cash cow,” Nicolas Hue de La
Colombe, an analyst at Credit Agricole SA who values Bouygues
Telecom between 4.5 billion euros and 5 billion euros, wrote in
a note. He said talks may materialize by the end of the year.
Phone Value
Bouygues introduced a so-called triple play discount
package last month that bundles Internet, fixed phone and TV
services. The company, which had 11 million mobile-phone clients
and 2 million fixed broadband subscribers at the end of 2013,
said at the time it aims to gain 5 million triple play customers
as soon as possible.
At 5 billion euros, Bouygues Telecom would represent more
than half of its parent’s entire market value of about 9.5
billion euros yesterday. That also compares with Bouygues’s
market value of 5.5 billion euros as recently as November 2012.
Iliad shares rose 32 percent this year, reaching a record
215 euros on March 12 and bringing the company’s market value to
more than 11 billion euros.
Iliad had net debt of about 1 billion euros at the end of
2013. Chief Financial Officer Thomas Reynaud said this month
that the company has “ample room” to borrow more.
Bouygues Pressure
Bouygues’s telecommunications business, which represents
about a third of its conglomerate parent’s earnings before total
earnings before interest, taxes, depreciation and amortization,
has come under pressure amid price wars in France. The phone
unit’s Ebitda dropped 31 percent last year from 2011, and
revenue declined 19 percent over the same period.
A sale of Bouygues Telecom for 5 billion euros “would be a
good price for Bouygues shareholders, considering its lack of
critical mass in the broadband market and ongoing pressure on
mobile operations,” Stephane Schlatter, an analyst at Societe
Generale, wrote in a note. “A deal would also ease
uncertainties about the telecom business and thus contribute to
reduce the holding discount.”
Bouygues could use proceeds from selling the phone unit to
pursue other businesses as part of its conglomerate strategy,
Credit Agricole’s La Colombe said. In addition to the 90.5
percent stake in Bouygues Telecom, the company owns 44 percent
of TF1, the nation’s biggest broadcaster, and 29 percent of
train and power-equipment maker Alstom SA.
Earlier Interest
In the past, Bouygues has exited businesses such as
offshore exploration and water treatment when the chief
executive officer was dissatisfied with their growth prospects.
In April 2012, billionaire Bouygues didn’t rule out an initial
public offering of Bouygues Telecom further down the line.
Iliad’s founder Xavier Niel had examined Bouygues Telecom
among other assets in the past two years, two people familiar
with the matter have said. Bouygues wasn’t a seller of Bouygues
Telecom and antitrust hurdles also deterred a deal from
happening, people familiar with the matter have said.
While Bouygues is unlikely to shift its telecommunications
strategy right away, it hasn’t ruled out analyzing options for
its mobile business, said two people familiar with the matter,
who asked not to be identified because the deliberations are
private.
“If Bouygues missed the SFR deal, it was clear that it
could go talk to Iliad instead,” said Conor O’Shea, an analyst
at Kepler Cheuvreux.
Other Options
Even though French Industry Minister Arnaud Montebourg this
month said he favors a return to three carriers in the country,
there’s no sign that Iliad and Bouygues will rush into a sale.
Iliad instead could pursue organic growth, a strategy that
has boosted revenue so far, said Natixis’s Maynard, who values
Bouygues Telecom at 5 billion euros. Buying Bouygues Telecom
also would dilute earnings, Maynard said.
The closing of Numericable’s SFR purchase is also likely to
play a role in decisions about Bouygues Telecom. While Drahi
predicted a final contract with Vivendi will be signed before
the end of the month, a failed Numericable-SFR deal would open
more possibilities for Bouygues.
Any deal with Iliad and Bouygues may be difficult as the
two have struggled to see eye-to-eye in the past. Martin
Bouygues likened Iliad to a cuckoo in 2012, after Niel had said
French operators were treating their customers like “pigeons”
until he entered the market.
Consolidation Trend
Consolidating the French market more would put an end to
the fight between Bouygues and Iliad over discounted packages,
said Claudio Aspesi, an analyst at Sanford C. Bernstein & Co.
Such consolidation would follow a trend in other parts of
Europe. In Spain, Vodafone Group Plc agreed to buy cable
provider Grupo Corporativo Ono SA in a $10 billion deal this
week. Vodafone last year paid more than $10 billion for Kabel
Deutschland Holding AG, Germany’s largest cable company.
“France will settle into a market of three broadly
integrated players,” Aspesi said. “It seems likely that, one
way or another, Iliad and Bouygues will end up in each others’
arms.”
For Related News and Information:
Billionaire Drahi Faces French Scrutiny on Way to Win SFR
NSN N2LACS6S973E <GO>
Bouygues Increases Cash Portion of SFR Bid to $15.8 Billion
NSN N2DM2T6JIJUR <GO>
Iliad acquisition news: ILD FP <equity> TCNI MNA <GO>
Bouygues acquisition news: EN FP <equity> TCNI MNA <GO>
Real M&A columns: NI REALMNA <GO>
Top deal stories of the day: DTOP <GO>
--With assistance from Matthew Campbell in London.
To contact the reporters on this story:
Marie Mawad in Paris at +33-1-5530-6290 or
mmawad1@bloomberg.net;
Francois de Beaupuy in Paris at +33-1-5365-5051 or
fdebeaupuy@bloomberg.net
To contact the editors responsible for this story:
Beth Williams at +1-212-617-2307 or
bewilliams@bloomberg.net;
Kenneth Wong at +49-30-70010-6215 or
kwong11@bloomberg.net;
Simon Thiel at +44-20-7673-2814 or
sthiel1@bloomberg.net
Whitney Kisling