Bouygues Weighs Bid With Co-Investors for Altice UnitBy , , , and
French firm has held early talks with investors including CVC
Shares of Altice rose by most in more than three months
Construction and telecommunications conglomerate Bouygues SA is considering a bid with other investors for Altice NV’s struggling French unit to consolidate the telecom market, according to people with knowledge of the matter.
Bouygues has held preliminary talks with investment firms including CVC Capital Partners about the viability of teaming up to bid for Altice France, whose main business is the SFR Group, the people said, asking not to be identified because discussions are private. Deliberations are at an early stage and the firms may decide against pursuing a deal, they said. Shares of Altice rose by the most in more than three months.
“Like any other market player, Bouygues regularly looks at development possibilities in the telecoms sector,” the company said in a statement Friday. “However, there are currently no discussions with any other operator and no assignment has been retained with any counsel whatsoever.”
A spokesman for Altice declined to comment beyond saying that SFR is one of its essential assets and a long-term project of the group. Representatives for CVC weren’t immediately available for comment.
A potential deal would offer Bouygues a way of taking out a key local competitor and add customers in a market where profits had been squeezed by a stiff four-way rivalry that forced companies to invest in their networks. It could also close the gap with No. 1 operator Orange SA. Chairman Martin Bouygues has restored profit by slashing costs and gaining customers in the years since billionaire Xavier Niel’s Iliad SA upended a once-stodgy market with ultra-cheap offerings in 2012, triggering a fierce price war.
Shares of Altice rose as much as 9 percent before closing up 5.4 percent to 8 euros in Amsterdam. The gains curbed its decline over the past year to about 61 percent. Bouygues dropped about 0.3 percent to 42.21 euros in Paris.
Meanwhile, Altice’s 750 million euros of notes due February 2025 jumped one cent on the euro to 99 cents, according to data compiled by Bloomberg.
Telecom operators in France have benefited in recent months from rising economic growth and consumer confidence, allowing the carriers to add wireless and broadband subscribers at a rapid pace. That led Orange in February to post its first domestic annual revenue growth in eight years, while predicting a faster increase in earnings in 2018. Profit at Bouygues’s telecom unit almost tripled in 2017 from 2016 after losing money in three the three previous years.
For billionaire Patrick Drahi’s Altice, a takeover may be the answer to the problems that have plagued the company in recent months, including disenchanted investors, an exodus of customers and a debt load of about 31 billion euros ($38 billion). Drahi has shuffled management, halted acquisitions and committed to asset sales including the spinoff its U.S. unit.
French regulators are likely to demand remedies to maintain consumer-friendly competition in the media and telecom industries in exchange for approving a potential deal, which could see the top telecom firm Orange and smaller challenger Iliad pick up some of SFR’s assets. A combination could also enable the companies to generate significant cost savings from overlaps in administration, personnel and infrastructure.
A previous effort at consolidation -- by Orange in April 2016 -- failed, in part because of opposition from lawmakers and regulators. The former French phone monopoly, with the government as its biggest shareholder, abandoned efforts to buy Bouygues’ telecom business in the face of antitrust concerns and demands on social guarantees. Emmanuel Macron, who was economy minister at the time, sought a higher valuation for Orange shares.
Macron’s ascendancy to president won’t be a game-changer for fresh attempts at consolidation, said Erhan Gurses, an analyst at Bloomberg Intelligence. As economy minister in December 2015, Macron said that in principle he wasn’t against telecom mergers. But the French regulator remains critical of industry concentration, Gurses said.
Altice was allowed to acquire SFR about four years ago only after it pledged to invest billions in its network, protect jobs and act as the guarantor of the four-way rivalry versus Bouygues, Niel’s Free and Orange. But SFR’s cost cuts haven’t stopped customers from going elsewhere or revenue from declining.
Even if Drahi threw in the towel and put SFR up for sale, a deal -- through a sale to Bouygues, for example -- would have to clear many political hurdles to reduce the number of operators to three.
— With assistance by Sarah Syed, Katie Linsell, Manuel Baigorri, and Francois De Beaupuy