Bouygues weighs options amid signs price war is ending
As one of the most familiar faces in French corporate business, Martin Bouygues has been around long enough to experience the joys but also the despair that inevitably accompany life as a captain of industry.
In recent days, Mr Bouygues has been in the spotlight for his company’s 29.4 per cent holding in Alstom, the French engineering group, whose share price has risen 35 per cent in the past few weeks after it emerged that General Electric of the US was interested in buying it.
But there can have been fewer more disappointing days than April 5, when Vivendi confirmed that it would sell its SFR unit to Numericable rather than to Mr Bouygues’ eponymous construction and telecoms conglomerate.
For the 62-year-old veteran, who dropped out of university in 1974 to take up a position as a site manager at his father’s business, clinching SFR was paramount.
His Bouygues Telecom unit has suffered as much as his rivals in France’s price war, and its earnings before interest, tax, depreciation and amortisation have tumbled from €1.4bn in 2010 to just €880m last year while free cash flow has dropped from €406m in 2010 to €24m last year.
Mr Bouygues, a close friend of Nicolas Sarkozy, France’s centre-right former president, and of the present socialist president, François Hollande, saw in SFR an opportunity for acquiring the sort of scale that could halt, or at least slow, those falling numbers.
A tie-up would have married Bouygues’ 14.5 per cent share of the French mobile market, the third-largest, with SFR’s nearly 28 per cent. That combination would have seen Bouygues leapfrogging Orange to become the country’s largest mobile provider.
Little wonder that Mr Bouygues lobbied the government hard to back his bid and also used the local press to further his ambitions – a tactic that produced considerable annoyance among Vivendi’s board of directors.
What is next for Bouygues Telecom? One analyst who follows the company argues that in its favour are signs that the two-year-old price war may reaching its end.
That will probably mean a long-awaited stabilisation in revenues and, with it, a chance for the sector to catch its breath after a lengthy and bruising fight. “If Iliad keeps prices where they are today, the market will stabilise and Bouygues would remain a viable proposition,” he says.
But the analyst points out that viable is not the same as attractive. And whether Mr Bouygues is prepared to continue forming an also-ran in a far less lucrative sector than before – and at a time when groups are shelling out large sums to install 4G and fibre infrastructure – has become the subject of considerable speculation.
Many industry analysts consider a merger with Xavier Niel’s Iliad as more than possible – a scenario made all the more plausible by Mr Bouygues’ announcement during his pursuit of SFR that he would sell his mobile infrastructure network to Iliad in the event of a successful acquisition.
Mr Dellis of Jefferies says: “Given the recent pressure on the numbers, and having lost SFR, it is implausible to think that Martin Bouygues would plough on as before.”
For now, Mr Niel and Mr Bouygues are keeping tight-lipped. But many analysts give an eventual merger between Iliad and Bouygues Telecom a little more than a 50 per cent probability.
The good news for Mr Bouygues is that there are some signs that the price war may be entering its final phase. That, together with the possible sale of Alstom spelling a cash injection of several billion euros for the construction and telecoms group, implies that there is less urgency than before.
As Mr Weeden of Citi notes: “Freeing up cash flow would mean that Bouygues would avoid any risk of having to do a deal at a potential time of stress.”