(Adds CEO comments, analyst, shares)
By Gwénaëlle Barzic and Leila Abboud
PARIS, July 2 France's biggest telecom operator
Orange has ruled itself out of bidding for smaller
rival Bouygues Telecom, causing share prices across
the sector to drop on the prospect of the cut-throat competition
A price war sparked by low-cost player Iliad's
arrival to the mobile market in January 2012, has resulted in
open talk of consolidation in recent months. Third-place mobile
carrier Bouygues has become a target after losing out in a
bidding war in April to buy bigger rival SFR to cable
Orange acknowledged in May it was examining what role it
could play in French consolidation and sources said that it had
held informal talks with Bouygues Telecom.
In a statement issued on Wednesday, the company said:
"Orange has examined the possibilities of participating in an
operation that would lead to consolidation in the French
telecoms market, and believes that it cannot pursue this avenue
at the present time as the conditions that the Group has set
have not been met."
Orange Chief Executive Stephane Richard said talks with
Bouygues foundered over price, and how to allay antitrust
concerns over a marriage of number one and three carriers.
"Bouygues demands were too high, and Iliad did not want to
go far enough in taking part in putting a deal together,"
Richard told La Tribune.
A purchase of Bouygues by Orange would likely have required
a parallel deal with Iliad, which would buy Bouygues' network
and mobile frequencies, to overcome competitive concerns. When
Bouygues wanted to buy SFR, it agreed such a deal with Iliad.
"We excluded from the outset just handing Bouygues' network
and spectrum to Iliad, like the accord it had with Bouygues if
it had won the SFR deal," said Richard.
Orange's decision means that investors' hopes that France
would go from four to three mobile operators - along the lines
of Germany with Telefonica's purchase of KPN's E-Plus - have
been put on hold.
The ball is now back in Iliad's court since it too had
discussed a takeover with Bouygues in recent months. They too
were far apart on price, so it remains to be seen if direct
talks will be rekindled now that Orange has bowed out.
Martin Bouygues, the CEO and controlling shareholder of
Bouygues, said on Tuesday he had no intention of being the
"sucker" in any consolidation in France, signalling his
willingness to hold out for a better price.
"The status quo is back for at least a couple of months
probably," said Raymond James telecoms analyst Stephane Beyazian
in a research note.
The French government, which owns 27 percent of Orange,
could try to get the companies back to the negotiating table.
Economy Minister Arnaud Montebourg has said the government
supports a reduction of the number of mobile players to three
because intense competition in the sector is jeopardising jobs
and investment in high-speed broadband.
Jerry Dellis, an analyst at Jefferies, predicted that "more
active government intervention is likely to re-energise the
process in due course."
Shares in Bouygues closed down 1.8 percent to 29.78 euros.
Iliad finished 3.4 percent lower, and Orange 3.7 percent lower.
Shares in Numericable, which is buying Vivendi's SFR, the
market's second biggest operator behind Orange, dropped 2
percent to 43.75 euros.
Bouygues and Iliad declined to comment.
(Writing by Natalie Huet and Andrew Callus; Editing by Louise
Heavens, Greg Mahlich and David Evans)