Bloomberg News

Vivendi Prefers Drahi’s Bid for SFR Carrier, Montebourg Says (2)

March 14, 2014

A Numericable Store Sits in Toulouse

A logo for the French cable-TV provider Numericable SAS is displayed on the window of a store in Toulouse. Photographer: Balint Porneczi/Bloomberg

Vivendi SA (VIV), weighing competing offers for its SFR phone unit, prefers a bid from billionaire Patrick Drahi’s cable holding Altice SA (ATC), according to French Industry Minister Arnaud Montebourg.

Choosing Altice’s bid would be risky for France because of a high level of debt Drahi would bring to the combined entity, Montebourg told Europe1 radio station today as he repeats his support for a rival offer from Bouygues SA (EN), the construction and media conglomerate led by Martin Bouygues.

“I understood that the heads of Vivendi wanted to sell SFR to Numericable, no matter what,” Montebourg said, referring to Altice’s unit. “This can be a problem because the company is very small, a small company taking on a huge amount of debt.”

Vivendi’s board is meeting today to discuss the two offers, each valued at more than $20 billion. While Chairman Jean-Rene Fourtou, 74, may be more concerned about financial returns and guarantees of a timely exit from SFR, President Francois Hollande and his advisers have asked Vivendi to agree to a set of social considerations, said a top state official, asking not to be named citing government policy.

Fourtou, who will hand over the chairman position to Vincent Bollore this year, is trying to deliver on a promise to investors that he’ll divest telecommunications assets. Yet, he can’t do so without considering the government’s opinion just as Vivendi shifts its business toward French-focused pay-TV unit Canal Plus, in a tightly regulated industry, said another person familiar with the matter, who asked not to be named because the discussions are confidential.

Knowing Bouygues

Keeping jobs in France -- SFR employs more than 9,000 people -- investing in the country’s networks, and providing full financial transparency of all holdings involved in any transaction make up a “red line” that shouldn’t be crossed, the government official said.

“We know Mr. Bouygues and he said there wouldn’t be job cuts,” Montebourg said. “The state is not the owner of the one or the other. The state expressed a preference. There are some problems: overwhelming debt, no competition in cable, fiscal problems. We are going to solve these problems now.”

Drahi will have to bring all his assets to France, the minister said.

Net Worth

Drahi, who resides in Switzerland and has a net worth of $6.5 billion according to the Bloomberg Billionaires Index, controls his stake in Luxembourg-based Altice through Next LP, a holding company based in the Bailiwick of Guernsey, a U.K. crown dependency.

Representatives for Drahi and Bouygues declined to comment. In a statement, Vivendi said its supervisory board, meeting at 11 a.m. local time, will examine both bids.

Altice fell 0.5 percent to 27.81 euros at 11:30 a.m. in Amsterdam trading. Numericable gained 3.8 percent to 27.41 euros in Paris, Bouygues fell 3.1 percent to 30.47 euros, while Vivendi slipped 0.4 percent to 19.79 euros.

Montebourg has spoken publicly in favor of the bid by Bouygues. Although the minister’s position doesn’t represent the rest of the government, the rationale behind his support is shared by Hollande’s entourage, the official said.

Bouygues yesterday boosted the cash portion of its offer by 800 million euros ($1.1 billion) to 11.3 billion euros and promised Vivendi a smaller stake -- 43 percent instead of 46 percent -- in a merged SFR and Bouygues Telecom.

Revised Bids

Altice, the cable holding company controlled by Patrick Drahi, said it also put in a revised offer, after bidding 10.9 billion euros in cash plus assets that together would value SFR at about 14.7 billion euros. Changes were made to give Vivendi guarantees about financing and alleviate regulatory risks, said another person familiar with the matter, asking not to be named because the details are confidential.

To address regulators’ concerns that a combination of Bouygues Telecom with SFR 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.

An acceptance of either offer would mean Vivendi scrapping a plan to distribute SFR stock to shareholders by July 1. Vivendi could also decide to reject both bids and proceed with the planned spinoff.

SFR is only the latest example of major deals in France being negotiated in ministers’ offices and at the president’s 19th-century palace, whether the state has a stake or not in the companies. The debate over protecting French interests has been a political hot potato since Canadian aluminum maker Alcan Inc. bought French rival Pechiney SA a decade ago, eventually breaking it up and shutting plants.

In a letter to French ministers dated March 12, Drahi made promises on jobs, investments and favoring equipment made in France. Drahi won’t change SFR nor Numericable’s pricing strategy, he said in the letter, a copy of which was seen by Bloomberg News. Bouygues has made a similar set of pledges.

To contact the reporters on this story: Marie Mawad in Paris at mmawad1@bloomberg.net; Helene Fouquet in Paris at hfouquet1@bloomberg.net; Francois de Beaupuy in Paris at fdebeaupuy@bloomberg.net

To contact the editors responsible for this story: Kenneth Wong at kwong11@bloomberg.net; Alan Crawford at acrawford6@bloomberg.net; Aaron Kirchfeld at +44-20-3525-8830 or akirchfeld@bloomberg.net


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