Orange Extends Talks to Buy Bouygues’ Phone Unit in France

  • Companies say talks weren't advanced enough to make decision
  • Boards will meet again by Sunday for final determination

Orange SA and Bouygues SA are heading into a make-or-break weekend as they try to salvage their wireless-phone merger plan, after acknowledging that talks had not advanced sufficiently to clinch a deal.

Shares of both companies declined after they agreed to extend discussions, with months of talks failing to produce an agreement on a deal that would create a French wireless giant. The boards will meet again before the end of April 3 after a final negotiating push, they said in separate statements on Thursday. Orange’s planned purchase of Bouygues’ wireless carrier would value the unit at as much as 10 billion euros ($11 billion).

The companies and the French government have yet to agree on how many Orange shares and votes Bouygues would receive in the transaction, people familiar with the matter said. The sides are also still debating how potential breakup fees would be shared, with board members raising questions about the risk that a deal might be knocked down by competition authorities, the people said, asking not to be identified because the matter isn’t public.

Bouygues said its board “will meet before the end of the weekend in order to make a final decision whether to pursue the merger plan or not.”

A union would eliminate one combatant in one of Europe’s most competitive wireless markets, cutting the number of major players to three and potentially making competition less fierce. That would allow Orange to save on costs such as equipment purchases and customer service. French telecommunications companies have been seeking to combine in the aftermath of a price war caused by Iliad SA’s 2012 entry into the mobile market with discounted offers.

“We would see a failure in the discussions as a negative trigger for the French telco sector, even though the most likely outcome is still in our view a positive ending to the discussions,” Haitong Research analysts said in a note Thursday.

Shares of Orange declined 1.8 percent to 15.32 euros at 1:08 p.m. in Paris, while Bouygues lost 3.7 percent to 35.83 euros.

The talks involve numerous parties as Orange tries to offload some Bouygues assets. To head off any antitrust challenges, Orange has been negotiating to sell part of Bouygues Telecom to Numericable-SFR and Iliad, the No. 2 and 3 operators in the French market by clients.  A smaller operator, Coriolis Telecom SAS, may bid for some Bouygues Telecom assets, Le Parisien reported this week. Last year, Bouygues rejected a 10-billion-euro offer from Numericable, which is controlled by billionaire Patrick Drahi’s Altice NV.

The French government holds about 23 percent of Orange, the former state phone monopoly, including a direct stake of about 13 percent and about 10 percent owned through Bpifrance, the public investment bank.

While carriers have argued they can’t sustain investment unless competition eases, regulators have applauded cheaper phone packages as benefiting consumers. Orange said Jan. 5 it was in talks to buy the Bouygues business.

The discussions have dragged on for months, at times teetering on failure. Orange had said it was aiming for a decision by the end of March. Bouygues said Feb. 24 the talks need to be completed by the end of the first quarter to limit disruption to clients, employees and the market.

While Orange has sought to fashion a deal that would avoid approval problems, an agreement would still require review by the French Competition Authority.

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