Bloomberg News

Vivendi Said to Seek Final SFR Bids as Bouygues Boosts Odds

March 11, 2014

SFR Store

Vivendi SA is evaluating a sale of SFR as an alternative to spinning off the unit by July 1. Photographer: Fabrice Dimier/Bloomberg

Vivendi SA (VIV) has asked Bouygues SA (EN) and Altice SA (ATC), the competing bidders for its French phone unit SFR, to submit final offers by tomorrow, giving them a chance to improve their terms, people familiar with the matter said.

Cable tycoon Patrick Drahi and Bouygues, the construction-and-media conglomerate led by Martin Bouygues, each put in a binding proposal last week valued at about $20 billion, excluding synergies with their own cable and wireless assets. Altice, the cable holding company through which Drahi controls Numericable SA, said today its offer includes 10.9 billion euros ($15.1 billion) in cash and Numericable shares that would account for 32 percent of a combined entity with SFR.

Vivendi’s board is scheduled to meet by the end of this week to review final bids for France’s second-largest mobile-phone carrier due tomorrow evening in Paris, said the people, asking not to be named because the plans are private.

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To address regulators’ concerns that a combination of Bouygues Telecom with SFR -- together they have more than 21 million subscribers -- would reduce competition by cutting France’s number of network operators to three from four, Paris-based Bouygues agreed on March 9 to sell some wireless spectrum and its transmission network to discounter Iliad SA (ILD) for as much as 1.8 billion euros.

‘Lose Lose’

While merging SFR with Bouygues would yield higher synergies -- 10 billion euros according to Bouygues -- and offer a better chance at ending a price war in the French market through consolidation, a deal would be subject to intense regulatory scrutiny. Bouygues’s preemptive remedial measures, as well as support from Industry Minister Arnaud Montebourg, have alleviated some of those risks and improved its chances against Altice.

Numericable has argued that its bid will result in more investments in the country’s networks and promised it will keep jobs and favor local equipment makers.

“Numericable seems to be in a lose-lose situation,” Javier Borrachero, an analyst at Kepler Cheuvreux SA, wrote in a note. “Outbidding Bouygues would mean value destruction, while losing out implies the risk of marginalization.”

Jefferies analysts estimate Numericable should boost the cash portion of its bid by about 2 billion euros to 13 billion euros, compared with Bouygues’ 10.5 billion euros.

Drahi has raised more funds than needed and has the financial headroom to increase his bid, though he has no plan yet to do so, according to a person familiar with the matter.

Vodafone Valuation

In 2011, Vivendi bought full control of SFR, paying Vodafone Group Plc (VOD) about 8 billion euros for its 44 percent stake, valuing the carrier at 18 billion euros at the time.

Robin Bienenstock, an analyst at Sanford C Bernstein, estimates Bouygues’ offer values SFR at about 5.2 times the target’s 2013 earnings before interest, taxes depreciation and amortization, while Altice’s implies a multiple of 4.9 times. Both figures exclude potentials for cost savings and additional revenue from a merger.

Combining Bouygues and SFR would yield synergies of 10 billion euros, compared with 3 billion euros to 6 billion euros for Numericable-SFR, according to Kepler’s estimates. Numericable itself is assuming 12 billion euros of synergies in its bid, a person familiar with the matter said.

‘Credible Project’

“An SFR-Numericable combination is the only credible project to bring fiber and very high speed broadband to the entire country, delivering credible and realizable advantages for employees, consumers and suppliers in France,” Altice said in its statement. Its offer is valid until March 14, it said.

Tomorrow’s deadline is part of an ongoing discussion between Vivendi and the two SFR bidders rather than a strict cutoff, according to another person familiar with the matter.

A spokesman for Vivendi said its board will make a decision in due course based on all the elements provided by the bidders. A Bouygues representative declined to comment.

Xavier Niel, the billionaire entrepreneur who controls Iliad, said Bouygues’ proposal is “the most favorable scenario” for French consumers and the government. Iliad, which Niel said tried to buy SFR itself in 2012, is also open to a merger with Bouygues Telecom should Vivendi choose Altice’s bid, said a person with knowledge of the matter.

Vivendi’s Timetable

A successful combination between Bouygues and SFR could encourage other European mobile operators to attempt mergers. Telecommunications firms are eyeing consolidation as network costs rise and regulators tighten rules on revenue sources such as roaming fees.

Iliad rose 2 percent to 214 euros in Paris, after gaining 11 percent yesterday to the highest price since its initial public offering 10 years ago. Bouygues slipped 0.3 percent to 32.61 euros, while Numericable fell 2.9 percent to 24.19 euros. Vivendi fell 0.6 percent to 20.17 euros.

Vivendi is evaluating a sale of SFR as an alternative to spinning off the unit by July 1. To keep to its schedule, Vivendi would probably have to agree on a sale of SFR or file a listing prospectus with market regulators by the end of March.

Vivendi, Europe’s largest media-to-telecommunications group, will have to assess political risks as well as antitrust issues. While French government spokeswoman Najat Vallaud-Belkacem said the state doesn’t have a preferred candidate as SFR’s owner, Industry Minister Montebourg has said in the past week in interviews with French media that he favors a return to three mobile carriers.

Montebourg told RTL radio today that a combination of Numericable with SFR would mean a price war in France.

“The government won’t decide for Vivendi, but it can have a preference,” he said.

To contact the reporters on this story: Marie Mawad in Paris at mmawad1@bloomberg.net; Matthew Campbell in London at mcampbell39@bloomberg.net

To contact the editors responsible for this story: Kenneth Wong at kwong11@bloomberg.net; Aaron Kirchfeld at akirchfeld@bloomberg.net Ville Heiskanen


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