Orange Advances Talks on Acquiring Bouygues Unit - Report
January 03 2016 - 11:52AM
Dow Jones News
By Nick Kostov and Sam Schechner
PARIS--Orange SA (ORA.FR) has signed a confidentiality agreement
with conglomerate Bouygues SA (EN.FR), deepening negotiations to
acquire its telecom unit for 10 billion euros ($10.86 billion),
French newspaper Le Journal du Dimanche reports Sunday.
As part of a potential deal, Orange would pay Bouygues EUR8
billion in shares and EUR2 billion in cash, the newspaper says. On
Dec. 24, the two sides signed a confidentiality agreement, a
traditional step toward more formal merger talks, and will meet to
discuss the sale next week, the report adds.
A person familiar with the matter told Dow Jones Newswires in
December that early-stage discussions started in October when the
Bouygues camp approached Orange to discuss the sale of its telecom
unit.
A spokeswoman for Orange declined to comment on the report
Sunday, while a spokesman for Bouygues didn't return calls seeking
comment.
An Orange-Bouygues deal would give the former French monopoly
heft ahead of what European telecom executives expect will be a
winnowing of their herd. Telecom chieftains say they need to be
bigger in order to compete with Silicon Valley firms that
increasingly offer a free suite of communication services, from
text to video chat.
Executives at Orange have worried their company is too small and
risks becoming prey rather than predator when the industry giants
begin their hunt. As of Friday, markets valued Orange at roughly
EUR41 billion, compared with EUR54 billion for Telefonica SA (TEF)
of Spain and EUR76 billion for Germany's Deutsche Telekom AG
(DTE.XE).
If Orange pays for Bouygues Telecom largely in stock and merges
the firm into Orange, the combined company could see its market
capitalization grow to as much as EUR50 billion, depending on how
investors regard the deal.
Orange wants to "swallow rather than be swallowed," a person
close to the company said in December.
In France, the deal could help the country's incumbent telecom
operators recover from a lean four years, following the entry into
the mobile market of a fourth operator.
Iliad SA's (ILD.FR) Free Mobile set off a price war that caused
revenue to slide and profits to plunge. The competition also forced
the companies to accelerate their rollout of high-speed 4G networks
in a bid to hang on to subscribers--further eating into profit.
Bouygues Telecom suffered the most, because it had a larger
staff relative to its base of subscribers. The lower profit also
hit profit at competitor SFR, leading then owner Vivendi SA
(VIV.FR) to embark on spree of asset sales that eventually led to
SFR's purchase by cable magnate Patrick Drahi.
The value of the reported Orange-Bouygues deal is similar to the
EUR10 billion bid that Mr. Drahi made for Bouygues Telecom last
year. Martin Bouygues, the controlling shareholder in Bouygues,
turned down that offer, saying a sale to Mr. Drahi would put French
jobs at risk.
Analysts had suggested that Mr. Bouygues would have a difficult
time justifying a sale at a lower price to his shareholders.
Even if Bouygues and Orange can agree on a deal, it is far from
a fait accompli. Five years ago, French officials helped push
through the creation of a fourth mobile operator in the country in
order to boost competition and lower consumer prices--goals that
were roundly achieved. French Economy Minister Emmanuel Macron said
in December that he wasn't opposed "in principle" to telecom
consolidation, however.
Write to Nick Kostov at nick.kostov@wsj.com and Sam Schechner at
sam.schechner@wsj.com
(END) Dow Jones Newswires
January 03, 2016 12:37 ET (17:37 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
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