French Telecom Companies Looking to Make a Deal
December 08 2015 - 12:41PM
Dow Jones News
By Nick Kostov And Sam Schechner
PARIS--French telecommunication companies are reviving efforts
to reduce the number of mobile-phone businesses at home and expand
abroad as they try to restart a wave of deal making across
Europe.
Orange SA is weighing multiple acquisition targets in France and
in Europe, to build scale so the former French monopoly doesn't
itself become a target in future, according to people familiar with
the matter, who added that the exploration is still preliminary and
no deal is imminent.
The potential options Orange's advisers have proposed include
Dutch-based Royal KPN NV, and Belgium's Proximus Group, according
to a person familiar with the deliberations. Orange is also
considering deal options with the telecom unit of French industrial
firm Bouygues SA, or Telecom Italia SpA, the person added.
Orange wants to "swallow rather than be swallowed," said another
person close to the company.
Iliad SA, the low-cost upstart that kicked off a price war in
France by becoming the country's fourth mobile operator in 2012 and
slashing prices, is also looking to buy assets outside France,
people familiar with the matter said. Iliad counts some 17 million
fixed and mobile subscribers in France and is eager to build scale
by putting its model and management team to work in another market,
one of these people said.
An Orange spokesman said the company wouldn't comment on "press
rumors." A spokesman for Bouygues declined to comment on any talks
with Orange, but said the firm intended to remain in the telecom
sector. A spokeswoman for Iliad declined to comment, while
representatives of KPN, Proximus and Telecom Italia didn't
immediately respond to requests for comment.
The hunt for scale comes as telecom consolidation in Europe has
stalled in recent months. Still, investors' continue to push
companies to combine in the face of competition. Fast consumer
adoption of communications apps and social media have made telecom
executives seek size in what some frame as a race with Silicon
Valley.
Telecom operators in Europe had been on a deals blitz over the
past two years, with companies in the U.K., Italy, Germany and
elsewhere looking to merge to share the burden of costs as revenues
slide.
In France specifically, telecom executives have for two years
sought to shrink the number of mobile operators, amid falling
revenues caused by intense competition.
Feeling the pressure, executives like Orange CEO Stéphane
Richard say the number of mobile operators must return to three
from four to make their businesses profitable enough to create an
incentive for investment. Orange has in recent years struggled to
grow earnings and revenues in France, its biggest market, and a
deal would lead to substantial cost savings, analysts say.
It isn't the first time Bouygues's telecom unit has been coveted
by a rival since its parent company, controlled by industrialist
Martin Bouygues, failed in a 2014 bid to buy France's No. 2 mobile
company by subscribers, SFR.
Bouygues held talks with both Orange and Iliad about a potential
sale in the first half of 2014, but ultimately failed to agree on
price. In June, it rejected a 10 billion euro bid--valuing the
company at roughly twice of most estimates -- from larger peer
Altice SA, citing execution risk and confidence in its stand-alone
strategy.
Since then, Bouygues Telecom has reported improving financial
performance. In the third quarter, the telecoms division added
94,000 fixed-line phone customers and 208,000 mobile customers.
For Mr. Bouygues, who started the business some 21 years ago,
the telecoms arm has a clear sentimental value, people close to him
have said. This could make a deal with Orange more likely: if
funded by shares, Mr. Bouygues could retain a healthy stake in
Orange, and keep his hand in the industry.
Speculation about a deal involving one of the French operators
has resurfaced since France completed the auction of six blocks of
700 MHz frequencies in November, raising EUR2.8 billion.
A potential stumbling block, however, is the increasingly tough
stance taken by the European Union on telecommunications mergers.
It is also unclear whether the French antitrust watchdog would
bless a reduction in the number of French operators.
"The regulatory hurdle for this type of deal would be severe,
and include not only the sale of spectrum and towers, but also
subscribers," said San Dhillon, an analyst at RBC Capital
Markets.
Write to Nick Kostov at Nick.Kostov@wsj.com and Sam Schechner at
sam.schechner@wsj.com
(END) Dow Jones Newswires
December 08, 2015 12:26 ET (17:26 GMT)
Copyright (c) 2015 Dow Jones & Company, Inc.
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