UPDATE 1-Bouygues searching for investors to improve SFR bid - sources

Wed Mar 26, 2014 9:33am EDT

(Adds breakup fee, background, company comments)

By Sophie Sassard, Leila Abboud and Matthieu Protard

LONDON/PARIS, March 26 (Reuters) - French conglomerate Bouygues is searching for additional investors to further improve its offer to buy its larger French telecom rival Vivendi's SFR unit, two people familiar with the situation said on Wednesday.

Bouygues' effort to buy SFR faces a high hurdle because Vivendi is in exclusive talks with a rival bidder, French cable group Numericable, until April 4 - during which time Vivendi does not have the right to speak to any other bidder.

Vivendi is working on Numericable's deal, which includes 11.75 billion euros ($16.2 billion) in cash and a 32 percent share in a new merged company to be formed through the acquisition. The deal will be voted on at an April 4 board meeting, said two other people close to the situation.

Nevertheless, Bouygues, France's third-largest mobile operator, refuses to abandon its pursuit of number 2 SFR because it sees the tie-up as key to saving its telecom business, which has been hit by the arrival of low-cost rival Iliad.

So keen is it to reach a deal that Bouygues's latest offer for SFR submitted on Jan. 20 raised the cash portion by 1.85 billion euros to 13.15 billion and would leave Vivendi with a 21.5 percent stake in the new merged company.

It also added a 500 million euro break-up fee to address Vivendi's concerns that competition regulators could slow or block a deal that would cut France's mobile operators to three from four, said the sources.

To offer Vivendi a quicker exit ahead of a flotation of the new company due by mid-2015, Bouygues also enlisted the support of the government through the state CDC fund, along with existing Bouygues Telecom shareholder JCDecaux Holding - parent of outdoor advertising firm JCDecaux - and the Pinault family, which runs retailer Kering.

The three would hold a combined 11.5 percent stake in the new company at the deal's close, while Bouygues would have 67 percent. The deal structure means Vivendi's exit would be faster than in Bouygues' first bid, where the seller would have held a 43 percent stake at closing, which it would be unable to sell down until the public offering.

LARGE SPECTRUM

Bouygues is now trying to go further by "sending a dossier to a large spectrum of players, banks, insurers, private equity firms", with the aim of finding additional partners to offer Vivendi a quicker exit from SFR than that implied by its second bid, said one of the people.

"Now we are seeking more investors to increase again the cash portion and offer Vivendi a full exit," the person added.

A spokesman for Bouygues said the company believed its current offer for SFR was the most attractive. "Bouygues is working so as to be able to give Vivendi the option to sell at the closing of the deal more shares in the new company, if Vivendi so chooses."

A spokesman for Altice, parent company of Numericable, declined to comment beyond noting it remained in exclusive talks with Vivendi. Vivendi also declined to comment.

The outcome of the tussle for SFR will reshape the competitive landscape of Europe's third-biggest telecom market after two years of price war touched off by the arrival of Iliad's Free Mobile service. Price falls of some 20 percent convinced Vivendi it should exit telecoms and focus more on its media businesses.

If Numericable wins, a tie-up with SFR would allow it to become a major player in mobile and grab a large network of stores and sales staff. The combined company would have almost 7 million broadband customers and 21 million mobile customers.

If Bouygues prevails, the market would go down to three mobile operators, with the new company having some 32 million mobile customers, ahead of current leader Orange.

Both offers would require approval from antitrust regulators in Paris, although Numericable's review could be shorter since it is not a big player in mobile.

At a March 14 board meeting, when it chose Numericable for exclusive talks, Vivendi administrators were concerned that the Bouygues tie-up would get bogged down in a long regulatory review that could result in concessions undermining the 10 billion euros of cost savings promised by the tie-up.

To address that concern, Bouygues added the break-up fee, the two people said, which Vivendi would get if the deal was blocked or rendered unattractive by competition regulators.

Bouygues declined to comment on any break-up fee. ($1 = 0.7258 Euros) (Additional reporting by Gwenaelle Barzic in Paris; Editing by Andrew Callus and David Holmes)

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