* Vivendi board says talks will last three weeks
* Blow to Bouygues, which also bid for SFR
* Vivendi seeks to exit telecoms to focus on media
By Leila Abboud and Gwénaëlle Barzic
PARIS, March 14 Vivendi will enter
three weeks of exclusive talks with cable group Numericable
in an effort to finalise a deal to sell its telecom
unit SFR for 11.75 billion euros ($16.4 billion) in cash, plus a
stake in the resulting business.
The decision is a blow to conglomerate Bouygues,
which had also bid for SFR.
"The board considers the Numericable offer to be the most
pertinent for the group's shareholders and employees, and
carries lower execution risk," Vivendi said on Friday.
Amid intense political lobbying - France's industry minister
openly sided with Bouygues and criticised Numericable in a
morning radio interview - Vivendi's board made the choice that
was likely to help it exit a cut-throat telecoms market as
quickly as possible.
The Bouygues bid was seen by Vivendi insiders as riskier
because it would require a longer regulatory review and also
time to carry out an initial public offering of the new company,
sources said earlier.
Shares in Numericable were up 13 percent at 30.20 euros by
1331 GMT, while Bouygues' shares were down 8 percent at 28.82
euros. Vivendi was down 0.3 percent 19.80 euros.
For Numericable, which owns a cable network that covers two
thirds of French households and sells television and broadband,
winning SFR would vault it into the big league of French
It would also be a victory for billionaire entrepreneur
Patrick Drahi, who founded the cable group two decades ago,
against a later bid from Bouygues, in the face of the
family-controlled firm's intense political lobbying.
French Industry Minister Arnaud Montebourg had backed
Bouygues' bid because it would reduce the number of players in
the French mobile market to three from four and calm what he
called "destructive competition" that has sent prices down 20
percent in the past two years.
For Vivendi, a sale of SFR would cap a strategic overhaul
that began in spring 2012, when veteran chairman Jean-Rene
Fourtou declared there would be "no taboo" in re-examining the
160-year-old group's unwieldy holdings that ranged from video
games to telecoms in Brazil.
Fourtou became convinced that Vivendi should exit telecoms,
to focus more on its media businesses, after seeing the damage
wrought by the mobile price war in France which was set off by
the arrival of low-cost newcomer Iliad in 2012.
Once the group's cash cow, SFR began to drag down Vivendi's
results and core operating profit halved from 2011 levels to
1.07 billion euros at the end of 2013.
To revamp Vivendi, Fourtou in July 2013 sold its majority
stake in the profitable and growing video game business
Activision Blizzard to pay down debt, and in November
he sold its stake in Maroc Telecom, raising about 10.4
billion euros in total.
The stage was set to split off SFR into a separate company
by July, but that option looked less likely after Numericable
and Bouygues swooped in with their takeover bids.
Bouygues, which is now third place in French mobile, wants
to buy SFR to shore up its telecom business, which has been hit
hard by the arrival of Iliad's Free Mobile service. It agreed to
sell its mobile network and some spectrum to Iliad if it won the
race for SFR in anticipation of potential objections from
Iliad's shares fell 5 percent as Bouygues' chances faded.
For Numericable, 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.
Bouygues has offered Vivendi 11.3 billion euros ($15.7
billion) in cash and a 43 percent stake in the combined entity,
which would be spun off and listed on the stock market if
regulatory approval was secured.
Numericable on March 5 bid 10.9 billion euros in cash and a
32 percent stake in the new company, and sources familiar with
the matter said it later raised the cash portion of its bid by
as much as 850 million euros.