France to Push Telecoms Mergers to Stop Bouygues Job Cuts

France will use all means to help the country’s phone companies merge, a day after Bouygues SA said separate talks to combine with two rivals failed to result in a deal, according to Economy Minister Arnaud Montebourg.

Bouygues Telecom, the nation’s third-largest carrier, said yesterday it plans to cut 17 percent of its workforce after inconclusive talks over a linkup with Orange SA, the No. 1 provider, and Iliad SA, operator of the Free brand. French carriers should agree on a transaction that could help ease price wars and make such job cuts unnecessary, Montebourg said.

“Orange is one option, but there is also Free -- it’s about time these carriers agreed,” Montebourg said during a conference in Paris. “The state isn’t the decision maker in this matter, but we’ll use all means at hand to consolidate to three carriers in France.”

Vivendi SA agreed in April to sell SFR, the second-biggest carrier in France, to cable provider Numericable Group instead of Bouygues, missing out on an opportunity to reduce country’s number of phone companies after years of falling prices. Montebourg had backed Bouygues’s bid.

Market Repair

Pierre Louette, Orange’s secretary general, said at the same event today the company couldn’t agree with Bouygues on a deal that would “repair” the French market. While the companies remain in contact, an imminent offer by Orange isn’t being considered, two people familiar with the matter said.

“If Orange looked at any deal in the future, it would be guided first by the goal of creating value,” Louette said.

Bouygues Telecom yesterday announced 1,516 job cuts to help restore margins dented by the price war. Chief Executive Officer Olivier Roussat said on BFM radio today the company is streamlining its operations to be able to grow in a market with four carriers.

Bouygues, the family-run construction and media conglomerate led by Martin Bouygues, plans to reduce annual costs at the phone unit by 300 million euros ($406 million) by 2016, partly by eliminating administrative, marketing and information-technology positions, and shrinking its array of offers.

Valuation Disagreement

Bouygues was seeking 7 billion euros to 8 billion euros for its phone business, about 3 billion euros more than what Iliad was willing to pay, people familiar with the matter said this week. An Iliad spokeswoman declined to comment today. A representative for Bouygues didn’t immediately return a call seeking comment.

Bouygues shares rose as much as 4.9 percent an traded 4.3 percent higher at 33.40 euros at 1:24 p.m. in Paris. Iliad jumped 6.4 percent, Orange added 0.4 percent.

“We are confident that negotiations will resume since it is a lifetime opportunity,” Stephane Beyazian, an analyst at Raymond James in London, said in a note.

Bouygues stands to monetize its phone unit above its standalone valuation in a deal; Iliad could get a better network and mobile spectrum in a linkup with Bouygues, while Orange could save 1 billion euros in annual costs by taking over Bouygues, he estimated.

“After mobile price wars, what’s the point of starting fixed price wars?” Montebourg said. “The government doesn’t accept this. We’re keeping a long-term vision and have France’s general interest at heart.”

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