* A surprising piece of news
Bloomberg reported last night that Orange is in early discussions to buy Bouygues’ telecom and
media assets. Coming one week after Reuters reported that Orange had hired advisors to examine
M&A opportunities in Europe, it might well be a non-story (i.e., Orange could be simply assessing
its different options). This is especially given that Orange has been stating since the beginning of
the French M&A saga that it would not lead consolidation in the country.
* Such a deal would indeed make strategic sense…
While we see little benefits in cross-border M&A, we think there is large upside potential from incountry
consolidation. In particular, a takeover of Bouygues Telecom would remove the attacker in
the fixed-line market – a major positive for all French telcos. Such a tie-up should lead to
substantial cost and capex synergies (in particular in the context of fibre deployment) and see
Orange follow the recent trend of telco-media deals. For Bouygues, this would represent an ideal
opportunity, coming at a time when commercial momentum is strong.
* …but would face high regulatory hurdles
A combination of the two telecom businesses would raise substantial concerns in terms of market
concentration and employment in particular. Consequently, a deal would likely only go through with
large remedies. This would likely require the involvement of other players, which brings further
uncertainty. As a result, we see a low probability of such a deal materialising at this stage.
* Stock implications – potential positive for all French stocks
The market might start today pricing in a modest probability of such a deal happening, benefiting
Bouygues, Iliad, Num-SFR and Orange, in that order. We are Outperform on Iliad (TP EUR220),
Neutral on Orange (TP EUR16) and Bouygues (TP EUR32), and Underperform on Numericable-
SFR (EUR39).