Bouygues Offers $14.4 Billion Cash for SFR to Rival Drahi

Bouygues SA, the construction and telecommunications group led by Martin Bouygues, offered 10.5 billion euros ($14.4 billion) in cash for Vivendi SA’s SFR unit, setting up a bidding war with billionaire Patrick Drahi and potentially creating a phone carrier to rival Orange SA.

Bouygues said its offer, which includes assets at the Bouygues Telecom unit and is fully backed by financing from HSBC Holdings Plc, would generate additional revenue and cost savings of about 10 billion euros. A separate proposal by Altice SA, Drahi’s cable holding company, values SFR at about $20 billion through a mixture of debt, cash and equity, people familiar with the matter said.

If Vivendi accepts either bid, it would have to scrap a plan to distribute SFR stock to shareholders. A disposal of France’s second-largest mobile-phone company, which Vivendi took full control of in 2011, would represent a shift toward media assets including Canal+ and Universal Music Group under Vincent Bollore, who is set to replace Jean-Rene Fourtou as chairman this year.

“I’d be skeptical if Bouygues gets their hands on SFR,” said Emeka Obiodu, a telecommunications analyst at Ovum in London. “The market power SFR and Bouygues would have would definitely raise eyebrows with competition authorities.”

Political Risks

Another carrier that could potentially be interested in SFR would be its former stakeholder Vodafone Group Plc, which is “awash with cash” after the sale of its Verizon Wireless stake, Obiodu said. Ben Padovan, a spokesman with Vodafone, declined to comment on the speculation.

Vivendi, Europe’s largest media-to-telecommunications group, will have to assess whether any proceeds from a sale would compensate for the political and antitrust risks. SFR joining Bouygues Telecom would create a carrier with more than 21 million contract wireless customers -- closing a gap with market leader Orange.

Vivendi’s shares rose 0.9 percent to 20.75 euros in Paris, while Bouygues jumped 6.6 percent to 30.67 euros. Numericable fell 5.3 percent to 28.99 euros. Altice declined 4.2 percent to

30.10 euros in Amsterdam.

Drahi’s bid includes about 11 billion euros in cash, 3 billion euros in Numericable assets and a 750 million-euro capital increase by Altice, a person familiar with the matter said. Drahi has a net worth of $7.1 billion, according to the Bloomberg Billionaires Index.

Numericable doesn’t plan to raise its offer, according to a person familiar with the bid. A spokesman for Altice said he wouldn’t comment on the private matter.

Falling Prices

Bids from Bouygues and Altice, connected with broadband provider Numericable, come after calls for consolidation in an industry that has been battling falling prices since discounter Iliad SA two years ago started offering packages with its Free brand for as cheap as 2 euros a month.

Iliad, which had also considered a bid for SFR, didn’t submit an offer by yesterday’s deadline.

Vivendi said its supervisory board will examine the two binding offers. It will consider all options available in the best interests of employees and shareholders, it said.

Going from four mobile carriers to three in France is likely to involve a lengthy review by the French competition watchdog, while Altice’s proposal would probably avoid that because there is little overlap between the landline and wireless assets, people familiar with the matter have said.

IPO Plan

Under Bouygues’s proposal, the company would get 49 percent of the new entity, while Vivendi would have 46 percent, with JCDecaux SA -- a minority shareholder of Bouygues Telecom -- holding the rest.

The new entity would hold an initial public offering, allowing Vivendi to sell a further 15 percent of the capital, Bouygues said. The deal is structured to give the new entity “the means for its development” and an investment-grade status, said Bouygues, which is being advised by HSBC and Rothschild.

The new group would also sell new shares at the IPO, and would be ready to divest assets to meet antitrust requests, Bouygues CFO Philippe Marien said on a conference call today. It could raise about 3 billion euros in asset sales and through capital increase, Marien said. Bouygues wouldn’t take part in the capital increase, he said.

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