Vivendi auction of SFR heats up ahead of Wednesday deadline

Mon Mar 3, 2014 1:36pm EST

The logo of French mobile phone operator SFR is seen on a shop in Paris August 29, 2013. REUTERS/Charles Platiau

The logo of French mobile phone operator SFR is seen on a shop in Paris August 29, 2013.

Credit: Reuters/Charles Platiau

Related Topics

PARIS (Reuters) - Vivendi (VIV.PA) has asked bidders for its telecoms business SFR to submit preliminary offers by Wednesday night, said one person close to the situation, putting pressure on Bouygues (BOUY.PA), a latecomer to the auction whose bid faces competition issues.

The fresh attempt to consolidate the French telecoms market comes after more than two years of brutal competition sparked the arrival of low-cost player Iliad (ILD.PA) to the mobile arena. Revenues of the three other telcos have fallen 17 percent since Iliad's Free Mobile service launched in January 2012, while average revenue per mobile subscriber is expected to fall another 12 percent by 2016, according to Goldman Sachs.

The damage is part of the reason why Vivendi has been seeking to reduce its exposure to the capital-intensive telecoms business to focus more on its media units, such as pay-television and music. It was preparing to split off SFR into a separate listed company this summer, but is now also open to listening to offers that would head off the demerger.

Vivendi expects to receive bids for France's second-biggest mobile operator from local cable firm Numericable (NUME.PA) and Bouygues, owner of the third-largest mobile operator, said a second person close to the matter.

Vivendi does not expect to get a bid from Iliad (ILD.PA) despite reports the fourth-place mobile player is also interested, said the two sources.

A third source close to the situation said Iliad, owned by billionaire Xavier Niel, continued to monitor the situation around SFR. It has lined up financing from several banks in case it wants to jump in with a bid a later date, the source said.

Asked about the Wednesday deadline, first reported by Le Monde newspaper, a Vivendi spokesman said only: "Vivendi will take its time to study all the possibilities for the future of

SFR."

The offers are expected to include details on price, financing, governance, synergies and a potential roadmap for Vivendi to sell down a minority stake it might retain in the business, as well as an estimate of the deal's impact on jobs in France, a key issue for the government, said the second person.

"The deadline counts more for Bouygues because nothing is known so far about its offer," said the first source, adding that Numericable had already laid out its position to Vivendi.

Bouygues, the construction-to-media conglomerate, faces a tougher battle to get its hands on SFR because merging the number two and three mobile operators would attract tough regulatory scrutiny - a handicap Numericable would not face since it is not a force in mobile. Numericable has also been in talks on and off with Vivendi since 2012 over SFR, whereas Bouygues has jumped into action only in the past few weeks.

Nor is Vivendi abandoning preparations underway towards the demerger of SFR while it negotiates with potential bidders. With Citigroup and Societe Generale as advisers, it continues to work on the project.

Once Vivendi has the bids in hand, the board is expected to decide sometime in March whether to move ahead in exclusive talks with one of the bidders or to press ahead with the split.

"Vivendi is running a triple-track process," said the second person, referring to the split option and the parallel talks underway with two bidders.

The group confirmed last Monday it had been approached for a deal by Altice (ATCE.AS), the parent company of French cable operator Numericable.

A spokesman for Altice, which owns 40 percent of Numericable, declined to comment. Spokespeople for Bouygues and Iliad did not immediately return requests for comment.

Numericable has lined up about ten banks to finance its bid, which would include 8 billion euros in debt and 3 billion in a capital increase subscribed 75 percent by Altice, the first source said.

Vivendi, which would keep SFR's debt in this scenario, would get 11 billion euros in cash and 32 percent of the capital of the newly formed company.

Any deal which reduces the mobile operators in Europe's third-biggest telecom market from four now to three is sure to come under lengthy regulatory review because it could result in higher prices for consumers. A combined SFR-Bouygues Telecom would hold 42.8 percent of the mobile market at end-September, according to Societe Generale, while current leader Orange (ORAN.PA) would have 35.5 percent and Iliad 9.8 percent.

But unlike similar consolidation deals in Ireland and Germany now under review by the European Commission, a French mobile merger would be reviewed by Paris competition watchdogs and not Brussels.

That's because any combination of SFR with Bouygues, Iliad, or Numericable would bring together two groups that earn more than two-thirds of their EU-wide turnover within a single member state, giving the Commission no standing to review it, according to rules posted on the Commission's website. A spokesman for the competition watchdog in Brussels declined to comment.

The political maneuvering has already begun in Paris. Bouygues Chief Executive Martin Bouygues meet with President Francois Hollande last Thursday to discuss consolidation in the telecom sector, according to the Journal de Dimanche.

(Additional reporting by Nicolas Vinocur; Editing by Mark John and Mark Potter)

FILED UNDER:
Comments (0)
This discussion is now closed. We welcome comments on our articles for a limited period after their publication.