Orange Mobile Deal Would Take Bouygues Back to Builder Roots

  • Bouygues, Orange confirmed telecommunications talks on Tuesday
  • Bouygues already gets most of revenue from construction

A potential deal by French billionaire Martin Bouygues to sell the country’s No. 4 mobile-phone carrier to Orange SA will take his eponymous conglomerate back to its roots.

The strategy of Bouygues SA, in which Martin and his brother Olivier control 21 percent of the capital, will become even more centered on its globe-spanning construction business, building everything from France’s new military headquarters to office towers and highways. Bouygues already derives about 80 percent of revenue from construction, road works and property development.

“A deal between Orange and Bouygues would make Bouygues a construction company but above all a holding company with a stake in Orange,” Jean-Michel Salvador, an analyst at Alphavalue, said by e-mail. Bouygues also holds 44 percent of Societe Television Francaise 1, the owner of TF1, France’s most-watched TV channel and 29 percent of trainmaker Alstom SA.

If an agreement is reached with Orange, Bouygues would get a stake in the phone utility but would no longer operate the unprofitable mobile-phone business. Orange is in talks to acquire Bouygues’s telecommunications unit, the two companies said Tuesday, confirming a report last month by Bloomberg News that they were in early discussions.

With the value of a deal with Orange estimated at around 10 billion euros, any cash Bouygues gets could be used to further expand in building, especially in electrical engineering, to catch rivals Vinci SA and Eiffage SA, Natixis analysts wrote in a note this week.

Phone License

The Bouygues brothers’ father, Francis, founded the Paris-based company in 1952 to specialize in industrial works and construction. During the following decades, Entreprise Francis Bouygues moved into property development and public works, according to the company’s website.

Son Martin took over as chief executive officer in 1989 and telecommunications was his most visible contribution to the family enterprise. He won a mobile-phone license in 1994 and built the business from scratch to almost 11 million subscribers. Still, by that measure the company is the smallest of France’s four carriers.

Selling the unprofitable Bouygues Telecom will remove a drag on results caused by a crushing price war in France that dented phone companies’ profitability and prompted rivals to call for industry consolidation. The unit lost money in 2014 and in the first nine months of last year. The CEO has cut more than 2,000 jobs, slashed expenses and spoken of a “telecom crisis.” In June, he rejected an $11 billion offer from billionaire Patrick Drahi’s Numericable-SFR SAS for the operations.

CEO’s Connections

Speculation about the sale of the business fueled a 29 percent increase in Bouygues stock over the past year, giving the company a market value of 12.6 billion euros ($13.5 billion). Orange, in which the French state holds a stake of about 23 percent, rose 15 percent in the past 12 months.

Bouygues’s building business has developed landmark projects in France such as the Orsay museum in Paris and the Stade de France soccer stadium, as well as the new Ministry of Defense, all testimony to the 63-year-old CEO’s deep connections with his country.

Still, France’s sluggish economy has taken its toll. First-half 2015 results saw Martin Bouygues detailing difficulties with a refinery in the northern city of Dunkirk as well as with the French roads market, which he said is “performing badly” as local authorities invest less in public works.

The downturn at home is offset by what he called the “very dynamic” international business -- more than half of the company’s 29 billion-euro order book at the end of September came from abroad. Contracts won recently include a tunnel in Sydney, office blocks and a tower for Cambridge University in the U.K. and sewage installations in Qatar.

Media Investment

Should a deal with Orange go through, a question mark will hang over Bouygues’s media investment. The TF1 stake isn’t part of the discussions with Orange, according to people familiar with the matter who asked not to be identified because the talks are private. TF1, which is listed on the Paris stock market, wants to produce and distribute audiovisual content independent of its main channel and is making investments to do so, Bouygues has said. TF1 registered a drop in advertising revenue in the third quarter.

Martin Bouygues has said the price war between the country’s wireless carriers and subsequent pressure on margins are a result of “unfair” French regulation that led to the creation of four mobile networks.

“I know how to sell when it’s necessary,” Bouygues said in an interview last year. “My challenge is to walk tall out of this crisis.”

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