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Orange, Free and Bouygues Telecom Finalise a New Bid for SFR

"We've entered injury time." For the head of one of the four telecoms operators, the clock is ticking to acquire SFR. After a first rejection last October, the leaders of the consortium made up of Orange, Bouygues Telecom and Free are finalising their discussions to submit a higher new offer, l'Informé has learned.

"It's a matter of weeks before we know whether we go ahead or not," says one of the suitors. Orange wants to complete the acquisition of MasOrange in Spain before the end of the first half, a transaction that will alter the structure of its revenues outside France. After that, the acquisition of SFR would likely be reviewed by European competition authorities rather than French ones.

Several obstacles have already been cleared. For a long time, the parties disagreed on the structure of the transaction: should SFR be sold as a single entity, or broken up, with each acquirer taking only the business lines that interest them? In the first scenario, SFR would ultimately be owned by the trio of buyers; in the second, it would become an empty shell still in Patrick Drahi's hands. An agreement acceptable to Patrick Drahi has reportedly been reached on this seemingly technical point, which conceals a major issue: who will ultimately bear SFR's liabilities, notably ongoing litigation and the associated financial risks?

These include €1.1 billion in tax reassessments arising from various VAT manoeuvres, as well as a series of disputes that SFR has provisioned at €196 million. Furthermore, the three acquirers had feared uncovering skeletons in the closet linked to alleged misconduct by Patrick Drahi's associate, Armando Pereira, who is under formal investigation by Portuguese justice for money laundering and corruption. Drahi has, however, taken care to settle a number of sensitive files in recent months.

The main sticking point is obviously the price, particularly for Bouygues Telecom, which stands to take on the largest share of assets. In October, the trio had offered €17 billion (with Bouygues's subsidiary paying 43%) for most of the assets, bringing the total valuation to €21 billion. That figure was insufficient for Patrick Drahi, who has implicitly set a floor price of €23.6 billion, above which creditor approval would no longer be required to close the deal.

Since then, the trio has been working on a higher offer covering a broader scope. Yet SFR's representatives — notably Dexter Goei and Malo Corbin — appeared to walk away from talks a few weeks ago before backtracking. "They are very tough negotiators, even though they have the most to lose," one of the buyers noted with surprise.

That is not entirely accurate. If talks collapse, buyers Orange and Bouygues would suffer on the stock market, as their share prices have been buoyed for months by the prospect of consolidation.

On the seller's side, several options would remain open in the event of failure. First, a break-up sale already tested with investment funds and alternative telecoms operators. Potential buyers have already come forward for SFR's infrastructure network (NetCo) or its enterprise division (SFR Business). "And the consortium members, once failure is confirmed, could themselves bid individually for certain assets — and end up competing against each other," one insider noted.

In theory, Patrick Drahi could still attempt a full sale to a foreign buyer — names such as Etisalat, STC and KKR have been mentioned. However, any new entrant would offer a significantly lower price, as such a deal would not reduce the number of operators and would generate no synergies (higher prices, lower investment, job cuts). Last October, JP Morgan analysts estimated that SFR was worth €20.5 billion in a sale to its three rivals, but only €16.1 billion without consolidation — equivalent to 5x 2027 EBITDA, the sector average.

A final option would be to abandon the sale altogether. But that appears increasingly unrealistic. SFR still carries €16 billion of debt, and its commercial performance continues to deteriorate. Revenue fell 9.3% in the third quarter to €2.26 billion, while EBITDA declined 11.4% to €764 million. More worryingly, in its latest note, Standard & Poor's predicted that EBITDA would continue to fall through 2026, that free operating cash flows would remain negative until 2027, and that the operator's financial structure was not viable in the long term.