UPDATE 1-Numericable shares soar after wins battle for Vivendi's SFR telecoms unit
* Deal set to close at end-2014 or early 2015 - Vivendi CFO
* Vivendi has yet to decide how to use SFR sale proceeds-CFO
* Numericable shares up 15 pct, Bougues shares down 5 pct (Adds comments from Vivendi, Numericable, updates shares)
By Dominique Vidalon and Gwénaëlle Barzic
PARIS, April 7 (Reuters) - Shares in French cable company Numericable surged on Monday after it won the battle to buy Vivendi's telecoms arm SFR, in a deal which creates the second-biggest player in a reshaped French telecoms market.
Despite a sweetened, last-ditch offer from rival Bouygues - the outsider in the race but favoured by the French government - Vivendi said on Saturday it had picked Numericable as the better bid in terms of business logic, commitment to preserving jobs, chances of regulatory approval and long-term value.
"The logical choice and the choice that will allow for the development of a very high-speed network in France prevailed," Numericable's billionaire backer Patrick Drahi told a news conference, where he said his victory was down to preparation and seven years' work on the project.
Drahi said he will meet on Tuesday for talks with Economy Minister Arnaud Montebourg, who had favoured the Bouygues offer.
Montebourg, a former industry minister who was promoted to be economy minister in last week's reshuffle, feared the Numericable deal would cost more jobs and spoke out during the month-long bid battle against Drahi's tax status, Swiss domicile and the way Numericable is structured.
But such opposition fell flat and Numericable, 40 percent owned by Drahi's Luxembourg-based holding company Altice , said it hoped to complete SFR's purchase in the fourth quarter of the year.
Vivendi finance chief Herve Philippe told analysts he was expecting the closure by end-2014 or early 2015 of a deal he called "a significant step in Vivendi's strategy to focus on media and content".
Shares in Bouygues, whose Bouygues Telecom unit has been hard hit by the price war that triggered the bid battle, dropped 6 percent. Vivendi shares were 1.4 percent higher while Numericable shares were up 15.4 percent.
Bouygues, which on Saturday took note of Vivendi's decision, has not made any new comments since then.
Numericable's winning offer - comprising 13.5 billion euros ($18.5 billion) in cash, a 20 percent stake in the combined entity for Vivendi and a potential milestone payment - creates the second-biggest player in the French market after Orange .
Drahi's Altice will own 60 percent of the combined entity and the remaining 20 percent will be floated on the stock market. Altice shares were up 10.5 percent.
"Low risk and excellent exit conditions played an important role in Altice's victory," Exane BNP Paribas analysts wrote. "We see very little regulatory risk. We assume closing in Q4".
Numericable said on Sunday it would launch a rights issue of new stock worth up to 4.7 billion euros to help fund the acquisition.
Following the issue, which will be guaranteed by Altice, the remainder of the cash payout to Vivendi - up to 8.8 billion euros - will be backed by debt financing, Numericable said.
Private equity firms Cinven and Carlyle have agreed to exchange their combined holding of 35 percent in Numericable for cash and shares in Altice, Numericable added.
Numericable's purchase of SFR promises to reshape Europe's third-biggest telecoms market after two years of brutal price competition brought on by the arrival of low-cost rival Iliad . Shares in Iliad lost around 5 percent, though they are still 33 percent higher than at the start of the year.
The sale completes Vivendi's drive to sell assets in order to shift towards media, leaving it with 5 billion euros in cash, some of which may be returned to shareholders via a special dividend, share buybacks or both, finance head Herve Philippe told analysts.
Vivendi will detail its plan to return capital to shareholders when it publishes the agenda for its annual shareholder meeting on June 24, Chairman Jean-Rene Fourtou had told newspaper Les Echos.
Fourtou and deputy board chairman Vincent Bollore see Vivendi's future in its pay-television unit Canal+, Universal Music Group and Brazilian broadband specialist GVT.
Vivendi had good reason to believe it could close the sale of its Maroc Telecom unit by the end of May, Philippe said.
Vivendi also plans to use some of the proceeds from the SFR and Maroc Telecom sales to pay down debt, which stood at over 11 billion euros at end-2013. The rest would go to acquisitions to fulfill Vivendi's ambitions in media.
"Clearly our policy is to be in a position to invest," Philippe said. "The goal is to develop Vivendi in media and content and to make some investments."
($1 = 0.7303 Euros) (Additional reporting by James Regan; Editing by Andrew Callus and David Holmes)