Bouygues Turns Up Pressure on Orange in Phone Merger Talks

  • CEO Bouygues demands initial Orange stake of at least 10%
  • Deal has 50% chance of falling through, Martin Bouygues says

Bouygues SA turned up the pressure in the talks to sell its mobile-phone division to Orange SA, demanding an initial stake of at least 10 percent in its bigger rival and saying there’s a 50 percent chance the deal won’t happen.

A holding of 10 percent to 15 percent in Orange “would be fine,” but anything less would be rejected, Chief Executive Officer Martin Bouygues told reporters at press conference in Paris on Wednesday. The deal is valued at as much as 10 billion euros ($11 billion).

“If we don’t reach a win-win deal for all, we’ll pursue our standalone strategy,” the executive said after the French construction and telecoms group reported better-than-estimated profit for 2015. “I’m interested in having a stake in Orange’s capital to benefit from future value creation in France and abroad.”

In a subsequent statement, Bouygues said it ultimately wants to end up with a 15 percent stake in Orange. It also said that the 10 percent to 15 percent stake only referred to what it might obtain via a capital increase of Orange to limit the government’s dilution of its stake in the former telephone monopoly, and that it would buy the balance required to reach 15 percent of Orange on open market.  

Talks with Orange need to be completed by the end of March to limit disruption to clients, employees and the market itself, Bouygues said. Faced with a price war in the French mobile-phone and Internet market, he opted to negotiate the sale of Bouygues Telecom to Orange in exchange for cash and shares.

Shares of Bouygues rose 0.1 percent to 34.68 euros Wednesday in Paris, while Orange lost 2.7 percent to 15.56 euros.

French Giant

Bouygues Telecom’s earnings before interest, taxes, depreciation and amortization rose 8 percent last year to 752 million euros, in line with a target of 750 million euros, as it eliminated jobs and other costs. Revenue climbed by 2 percent, after the carrier added 769,000 mobile clients and 360,000 fixed broadband customers.

Combining the division with Orange would create a French phone giant. To overcome antitrust opposition, Orange would sell part of Bouygues Telecom’s assets to Numericable-SFR and Iliad SA, the No. 2 and 3 operators in the French market in terms of clients. In June, Bouygues rejected a 10-billion-euro offer from Numericable.

Bouygues has no plan to get a bigger stake in Orange than the French government “for now,” the CEO said. He said he can’t forecast what the government will do with its Orange stake in the future. A shareholder pact between Orange and the French government isn’t in the cards, he said.

As part of a deal with Bouygues, France is willing to allow its Orange stake to be diluted, clearing one potential hurdle to a transaction, a person familiar with the matter said this month. The government holds about 23 percent of Orange, the former state phone monopoly, and wants to remain the largest shareholder and retain a blocking minority in terms of voting rights, the person said.

For Bouygues as a whole, operating profit before one-time items climbed 6 percent to 941 million euros in 2015, the Paris-based company said in a statement. Analysts had estimated 880 million euros on average.

“The group’s transformation strategy started to produce results in 2015,” Bouygues said in the statement. “Thanks to the strategy of transforming its business segments, the group should continue to improve profitability in 2016.”

Before it's here, it's on the Bloomberg Terminal.