French Telecom Companies Looking to Make a Deal
Mobile phone companies want to reduce the number of domestic providers and expand abroad
PARIS—French telecommunication companies are reviving efforts to reduce the number of mobile-phone businesses at home and expand abroad as they try to restart a wave of deal-making across Europe.
Orange SA is weighing multiple acquisition targets in France and in Europe, to build scale so the former French monopoly doesn’t itself become a target in the future, according to people familiar with the matter, who added that the exploration is still preliminary and no deal is imminent.
The potential options Orange’s advisers have proposed include Dutch company Royal KPN NV and Belgium’s Proximus Group, according to a person familiar with the deliberations. Orange is also considering deal options with the telecom unit of French industrial firm Bouygues SA or Telecom Italia SpA, the person added.
Orange wants to “swallow rather than be swallowed,” said another person close to the company.
Iliad SA, the low-cost upstart that kicked off a price war in France when it became the country’s fourth mobile operator in 2012 and slashed prices, is also looking to buy assets outside France, people familiar with the matter said. Iliad counts some 17 million fixed and mobile subscribers in France and is eager to build scale by putting its model and management team to work in another market, one of these people said.
Bloomberg earlier reported that Orange was exploring potential deals with Bouygues and Telecom Italia.
The hunt for scale comes as telecom consolidation in Europe has stalled in recent months. Still, investors’ continue to push companies to combine in the face of competition. Fast consumer adoption of communications apps and social media have made telecom executives seek size in what some frame as a race with Silicon Valley.
Telecom operators in Europe had been on a deals blitz over the past two years, with companies in the U.K., Italy, Germany and elsewhere looking to merge to share the burden of costs as revenues slide.
In France specifically, telecom executives have for two years sought to shrink the number of mobile operators, amid falling revenues caused by intense competition.
Feeling the pressure, executives like Orange CEO Stéphane Richard say the number of mobile operators must return to three from four to make their businesses profitable enough to create an incentive for investment. Orange has in recent years struggled to grow earnings and revenue in France, its biggest market, and a deal would lead to substantial cost savings, analysts say.
It isn’t the first time Bouygues’s telecom unit has been coveted by a rival since its parent company, controlled by industrialist Martin Bouygues, failed in a 2014 bid to buy France’s No. 2 mobile company by subscribers, SFR.
Bouygues held talks with both Orange and Iliad about a potential sale in the first half of 2014, but ultimately failed to agree on price. In June, it rejected a bid of €10 billion ($10.8 billion)—valuing the company at roughly twice of most estimates—from larger peer Altice SA, citing execution risk and confidence in its stand-alone strategy.
Since then, Bouygues Telecom has reported improving financial performance. In the third quarter, the telecoms division added 94,000 fixed-line phone customers and 208,000 mobile customers.
For Mr. Bouygues, who started the business some 21 years ago, the telecoms arm has a clear sentimental value, people close to him have said. This could make a deal with Orange more likely: if funded by shares, Mr. Bouygues could retain a healthy stake in Orange, and keep his hand in the industry.
Speculation about a deal involving one of the French operators has resurfaced since France completed the auction of six blocks of 700 MHz frequencies in November, raising €2.8 billion.
A potential stumbling block is the increasingly tough stance taken by the European Union on telecommunications mergers. It is also unclear whether the French antitrust watchdog would bless a reduction in the number of French operators.
“The regulatory hurdle for this type of deal would be severe, and include not only the sale of spectrum and towers, but also subscribers,” said San Dhillon, an analyst at RBC Capital Markets.