Vivendi confirms bids from Bouygues and Altice for SFR arm
Paris-based Vivendi confirmed on Wednesday night that it had received two binding offers from Bouygues and Altice for its telecoms operator SFR.
JPMorgan is one of at least eight banks that have agreed to finance up to €8bn as part of a €15bn offer by Altice through Numericable, the French cable company that it controls, according to people familiar with the matter.
The offers will pit French industrialist Martin Bouygues against Patrick Drahi, the billionaire entrepreneur behind Altice, in a direct bidding war.
Vivendi set Wednesday as the deadline for receiving the offers to give the company sufficient time to organise the content of its annual general meeting, which is scheduled for June 24, said sources familiar with the situation.
The financial details of both offers were expected later Wednesday, but people familiar with the informal talks say that both envisage Vivendi keeping a sizeable stake in the resulting tie-up.
Vivendi is in the middle of a profound restructuring that will see it shed many of its telecoms assets in order to become more focused on media and entertainment built around its Universal Music Group company and its Canal Plus pay-TV channel.
As part of that strategy, it said last year it would spin off SFR with a view to listing it on the Paris stock market. However, sources close to the talks with both Numericable and Bouygues say Vivendi is open to offers before it commits to floating SFR.
France’s socialist government on Wednesday said it would judge offers for SFR based on three criteria: job creation, investment capacity in the sector and the resulting service offered to customers.
The expected offer by Bouygues, if accepted, would reduce the number of players in France’s ferociously competitive mobile market from four to three, in effect reversing a state policy to open competition that gave a licence to operate to low-cost rival Iliad.
The resulting combination would also create the country’s largest mobile operator with an estimated 32m subscribers. Orange, formerly known as France Telecom, has about 27m subscribers, while fourth-placed Iliad has an estimated 7m as of the end of September.
That, together with the fact that an SFR acquisition by Bouygues would create an operator with four times the amount of spectrum as Iliad, would lead to significant regulatory hurdles – unlike an offer from Numericable.
“There probably would have to be substantial antitrust remedies, such as a return of spectrum and the sale of network assets,” said Hannes Wittig, an analyst at JPMorgan.
Indeed, the resulting antitrust issues could even prompt the European competition watchdog to step in.
In particular, Bouygues would need to offer far-reaching remedies to win approval from Joaquín Almunia, the EU’s competition commissioner, who has in the past taken a dim view on dividing major European markets between just three companies.
However, he is considering a similar deal in Germany, where Telefónica has agreed to acquire KPN’s local business, which could set a precedent for France.
Those with knowledge of the commission’s thinking said Telefónica would need to agree to sell spectrum and to support rivals using its network on a wholesale basis to win approval for the deal.
Similar concessions would be needed in France, and in particular to support Iliad’s Free, which still lags behind its larger rivals in network coverage. The French government would also likely require guarantees around employment, said one person familiar with the deal.
Analysts at Jefferies said Bouygues would need strong political support to sidestep competition concerns, as well as a likely rights issue to raise cash to make the acquisition.
However, Jefferies warned that a failure to secure SFR could leave Bouygues “chronically challenged . . . lacking competitive advantage and with cash flow already at break-even levels”.