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Vivendi SFR Spinoff Pits Billionaire Drahi Against Bouygues

Billionaires Patrick Drahi and Martin Bouygues are set for a competitive bidding war for Vivendi SA (VIV)’s French phone unit SFR in what could be one of the biggest financing deals in Europe this year.

Goldman Sachs Group Inc. and JPMorgan Chase & Co. (JPM) are among nine banks that agreed to provide 8 billion euros ($11 billion) in debt financing as part of a $20 billion bid prepared by Numericable SA and Altice SA (ATC), the companies controlled by 50-year-old Drahi, people familiar with the matter said.

Bouygues SA (EN), the construction to telecommunications firm led by Martin, is putting together a rival offer that may emphasize a large cash component backed by bank financing, other people familiar with the matter said. They asked not to be named because the discussions are private.

Both bids would entail Paris-based Vivendi keeping a minority stake and are likely to be submitted before a deadline today, the people said. Vivendi, which had planned to spin off SFR and distribute stock in France’s second-largest wireless carrier to shareholders, will have to evaluate whether any proceeds would compensate for the political and antitrust risks of clinching a merger agreement with either billionaire.

Photographer: Balint Porneczi/Bloomberg

Residential apartments are reflected in the window of an SFR store, a mobile-phone unit of Vivendi SA, in Paris. Close

Residential apartments are reflected in the window of an SFR store, a mobile-phone unit... Read More

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Photographer: Balint Porneczi/Bloomberg

Residential apartments are reflected in the window of an SFR store, a mobile-phone unit of Vivendi SA, in Paris.

Bouygues Risks

A combination of SFR with Bouygues’s mobile-phone unit would create a carrier with more than 21 million contract customers, the most profitable among wireless clients, closing a gap behind market leader Orange SA. Such a merger would likely attract intense regulatory scrutiny, people familiar with the situation said. Keeping jobs as well as investments in network infrastructure will be a priority for antitrust authorities, other people familiar with the matter have said.

“A bid for SFR from Numericable and its shareholder Altice is the deal most likely to progress to final stages,” CreditSights Research analysts Mark Chapman, Mary Pollock and Andrew Belton wrote in a note. “We remain somewhat skeptical about the potential for consolidation within the French mobile market.”

Vivendi’s shares rose 0.1 percent to 20.65 euros at 9:37 a.m. in Paris, while Bouygues fell 2.2 percent to 28.30 euros and Numericable gained 0.5 percent to 30.60 euros. Altice gained 0.1 percent to 31.53 euros in Amsterdam.

Price War

Operators across Europe are looking for ways to consolidate as costs rise for high-speed mobile networks and regulators impose rules on revenue sources such as roaming. Telefonica SA (TEF) and Royal KPN NV, which are merging their German phone units, received a statement of objections from the European Commission last week, a signal they will have to make concessions such as asset sales.

In France, wireless service revenue has been shrinking since discounter Iliad SA (ILD) started a price war with its Free brand in 2012. Orange and SFR’s mobile-service sales totaled 3.5 billion euros in the third quarter of 2013, about 20 percent less than the same period in 2011, data compiled by Bloomberg showed. The market is in “disastrous” shape and needs consolidation, Bouygues, 61, said on Feb. 26.

Iliad, the company founded by Xavier Niel, is watching closely how the auction unfolds, though it’s unlikely to make an offer for SFR, another person familiar with the matter said.

Debt Financing

Bank of America Corp. (BAC), Barclays Plc (BARC), BNP Paribas SA (BNP), Credit Agricole SA, Credit Suisse Group AG (CSGN), Deutsche Bank AG (DBK) and Morgan Stanley (MS) have also agreed to take part in the financing for Drahi, said the people familiar with the matter.

In addition to the 8 billion-euro debt financing, Drahi’s bid will include 3 billion euros in Numericable’s cable assets and a 750 million-euro capital increase by Altice, said one of the people.

Numericable’s proposed merger with SFR would probably avoid a lengthy antitrust challenge because it would involve a merger of landline with wireless assets, people familiar with the matter have said. A deal with Drahi would also keep the number of networks operators in France to four.

Representatives for Vivendi and Bouygues, both based in Paris, and Numericable, whose headquarters are in Champs Sur Marne, all declined to comment.

A disposal of SFR, which Vivendi fully took over from Vodafone Group Plc in 2011, would be the culmination of a strategic shift to focus on media assets including Canal+ and Universal Music. Billionaire Vincent Bollore, a Vivendi shareholder, is set to take over as chairman later this year when Jean-Rene Fourtou steps down.

Telecommunications and Internet dealmakers have financed transactions without much difficulty. The buyout of Dutch cable provider Ziggo NV (ZIGGO) by John Malone’s Liberty Global Plc last month attracted 13 banks to provide financing, including 3.7 billion euros of term loans.

Hellman & Friedman LLC, which agreed in November to acquire Deutsche Telekom AG’s digital-classifieds business Scout24 in November, partly financed the transaction with 695 million euros of buyout loans.

To contact the reporters on this story: Marie Mawad in Paris at mmawad1@bloomberg.net; Julie Miecamp in London at jmiecamp@bloomberg.net; Matthew Campbell in London at mcampbell39@bloomberg.net

To contact the editors responsible for this story: Kenneth Wong at kwong11@bloomberg.net; Aaron Kirchfeld at akirchfeld@bloomberg.net; Shelley Smith at ssmith118@bloomberg.net

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