Drahi Said to Plan $19.5 Billion Debt Financing for SFR Bid

Patrick Drahi is planning the biggest acquisition financing for a European phone company since 2005 to support his bid to acquire SFR from Vivendi SA. (VIV)

The billionaire’s offer is backed by 11 billion euros ($15 billion) of bonds and leveraged loans to be raised by a merged SFR and Numericable SA (NUM), while Drahi’s Altice SA (ATC) will issue 3 billion euros of junior debt, according to two people with knowledge of the matter, who asked not to be identified because the deal is private. It would be the largest acquisition financing for a European phone company since Telefonica SA got an 18.5 billion-pound ($31 billion) loan to buy U.K. mobile operator O2 Plc, according to data compiled by Bloomberg.

Telecommunication companies 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. Altice began exclusive talks with Vivendi on March 14 after it offered 11.75 billion euros in cash and a 32 percent stake in the combined business.

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“What this proves is that the financial markets are now open to fund larger deals,” said David Milward, the London-based head of loans at Henderson Global Investors Ltd. “They would find it easier than industrial or retail companies to tap debt markets in both the U.S. and Europe, given their relatively steady cash flow profile.”

Both Drahi and rival bidder Bouygues SA boosted their offers last week for France’s second-largest mobile-phone company.

Wireless Revenue

In France, wireless service revenue has been shrinking since discounter Iliad SA started a price war with its Free brand in 2012. Orange SA 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.

Banks have signed a “full contract” to finance the deal that values the combined Numericable and SFR at 20 billion euros, Drahi said at a press conference, without identifying the lenders. The average annual interest cost for the company borrowing may be at 4.5 percent, he said.

The new operator will have a leverage ratio of about four times, independent research firm CreditSights Inc. wrote in a March 14 report.

Charles Fleming, a spokesman for Altice employed by Havas, declined to comment on the financing.

Deutsche Bank AG, Goldman Sachs Group Inc. and JPMorgan Chase & Co. are coordinating the debt financing, said the people. Bank of America Corp., Barclays Plc, BNP Paribas SA, Credit Agricole SA, Credit Suisse Group AG and Morgan Stanley are also arranging the deal.

To contact the reporters on this story: Patricia Kuo in London at pkuo2@bloomberg.net; Marie Mawad in Paris at mmawad1@bloomberg.net

To contact the editors responsible for this story: Shelley Smith at ssmith118@bloomberg.net Michael Shanahan, Jennifer Joan Lee

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