* News
This morning, Orange announced that it had ‘examined the possibilities of
participating in consolidation’ and believed that ‘it cannot pursue this
avenue at the present time’. We note that there is no legal or time horizon
restriction on when Orange could launch a renewed approach for
Bouygues. CEO Stephane Richard has said that he did not expect talks to
resume for the coming months. According to Orange, negotiations had
reached a very advanced stage with Bouygues, including discussions over
the concessions involving distributing assets to Iliad and Bouygues.
However, Orange says that it could not reach an agreement with Iliad on
these concessionary deals.
* Analysis
While today’s announcement likely reduces the probability of consolidation
in the near term (we believe that this may forestall an Orange deal for a
couple of months), we continue to see a high likelihood of consolidation in
France in the medium term. We believe that the advanced stage which
consolidation negotiations have already reached demonstrates the
strategic rationale for a deal and Bouygues being open to the sale of its
asset.
* Implications
Today’s news is potentially a modest negative for the probability of
consolidation in France. However, we continue to believe that all players,
including the French government, are keen for consolidation. Within our
current Iliad price target, we include an equal weighting of an
Orange/Bouygues consolidation scenario, in which we value Iliad at €380,
and an Iliad/Bouygues scenario, in which we value Iliad at €320. The news
today has confirmed what we already understood, which was that
Bouygues is a seller of its telecom asset.