Bouygues Increases Cash Portion of SFR Bid to $15.8 Billion

Bouygues SA boosted the cash portion of its offer for Vivendi SA’s SFR phone unit to 11.3 billion euros ($15.8 billion), seeking to top a competing bid from cable billionaire Patrick Drahi that’s seen less likely to run into regulatory hurdles.

The construction and telecommunications group led by Martin Bouygues said today its revised proposal includes an additional 800 million euros in cash. Vivendi would get 43 percent of the entity formed by a merger of SFR and Bouygues Telecom, compared with 46 percent previously. Bouygues, which would gain a 52 percent majority holding, said its bid values SFR at 15.5 billion euros excluding potential for cost savings and additional revenue, an increase of 1 billion euros.

Drahi, who is bidding through his cable holding Altice SA and its Numericable SA unit, also submitted a modified offer yesterday, an Altice representative said today, without discussing details. Altice last week offered 10.9 billion euros in cash and assets that together would value SFR at about 14.7 billion euros. Bouygues’ sweetened bid was reported by Bloomberg News yesterday.

“From a financial and strategic standpoint their bid has a higher probability to succeed,” said Nuno Matias, an analyst a Banco Espirito Santo SA, referring to Bouygues. “Bouygues would have more flexibility to raise the offer, not least because of the synergies they can expect.”

Friday Meeting

Vivendi’s board will weigh regulatory and political risks, as well as the financial returns, when it meets tomorrow to evaluate the bids. Accepting either offer would mean scrapping a plan to distribute SFR stock to shareholders by July 1.

Numericable rose 2.4 percent to 26 euros at 2:07 p.m. in Paris. Vivendi fell 0.7 percent and Bouygues slipped 0.3 percent. Altice added 1.5 percent on the Amsterdam exchange.

A representative for Vivendi declined to comment.

A sale of France’s second-largest mobile-phone company, which Vivendi fully took over in 2011, would show the Paris-based company executing on a promise to shift its business toward media assets such as pay-TV channel Canal+ and Universal Music Group.

A combination of SFR and Bouygues would create a carrier with more than 21 million wireless subscribers to rival market leader Orange SA. That scenario would yield higher synergies -- 10 billion euros according to Bouygues -- even though the reduction of the number of network operators to three from four would draw intense scrutiny from French regulators.

IPO Plan

To address concerns that an acquisition of SFR would reduce competition, Bouygues agreed on March 9 to sell some wireless spectrum and its transmission network to discounter Iliad SA for as much as 1.8 billion euros. The deal is subject to its SFR bid going through.

“An IPO of the new entity is planned as soon as the merger is completed, offering Vivendi an immediate opportunity to monetize its interest,” Bouygues said in a statement today. “Bouygues is committed to facilitate the liquidity of Vivendi’s interest in the new entity.”

Bouygues is offering Vivendi several options to sell its stake of the new entity over three years, according to a Bouygues spokesman. Vivendi could divest a holding to financial investors before the planned IPO, and another 15 percent of the new group during the IPO, he said. The new company may also sell new shares after the IPO to bolster its finances, he said.

Moving On

Bouygues’ move, guaranteeing Vivendi the possibility of a timely exit, seeks to appease Vivendi Chairman Jean-Rene Fourtou, who is set to step down later this year and be replaced by Vincent Bollore, as Vivendi divests telecommunications to refocus on media.

Altice’s offer, which would give Vivendi a 32 percent stake in the enlarged company, doesn’t entail a so-called lock-up period for Vivendi, according to a person with knowledge of the matter. That means Vivendi can sell its stake anytime after the regulators approve the deal and the new entity is listed.

To keep his promise to shareholders that Vivendi will split itself into two companies by summer, Fourtou is likely to compare the timeline of the two bids. Fourtou will look to avoid any lengthy regulatory examination or prolonged lock-ups of its stake in any combined telecommunications entity.

In a letter to French ministers yesterday, Drahi made formal promises on jobs, investments and favoring equipment made in France. Drahi won’t change SFR nor Numericable’s pricing strategy, and doesn’t intend to increase prices on subscriptions including ultra-high-speed Internet, he said in the letter, a copy of which was seen by Bloomberg News.

Bouygues’ proposed remedies have won supporters including Industry Minister Arnaud Montebourg, who told French media in the past week that he favors a return to three mobile carriers.

“Whatever shape the consolidation takes, it will reinforce the existing players on the French and European markets,” Michel Combes, the chief executive officer of equipment maker Alcatel-Lucent SA, said yesterday. “Consolidation is necessary.”

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