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Bouygues bids a merger with SFR

Bouygues is offering €10.5 billion for SFR to merge with it, and claims the two together could generate extra cash and make savings of about €10 billion. Bouygues’ offer follows on from an original bid from Altice, the cable holding company of billionaire, Patrick Drahi, which values SFR at around €15 billion. Just to add some extra spice, market experts say they wouldn’t rule out other bidders entering the competition too: in particular they finger Vodafone, flush with cash and presumably ready to spend if in a good cause.

The unfolding drama will be testing time for France’s competition authorities since such a merger would drop France back to just three networks - almost certainly not enough to ensure robust, long-term competition in the Franch mobile market.

But that’s the point of course. Orange’s chief executive, Stéphane Richard, has recently been calling for consolidation in the market even though, in France, it could create a serious competitor to Orange. A larger and invigorated number two is still preferable, apparently, to a disruptive number 4, in the shape of Free, whose extreme price-cutting had upset the cosy, high-priced mobile market that pertained in France two years ago. Free at number 3 might be easier to accomodate.

M. Richard has been arguing that too much competition means the groups aren’t making enough money to reinvest in the networks. It’s an argument that seems to gain political traction in France with politicians wading in and promising ‘action’ against low prices and supposed network underinvestment.

So the scene is set for a test of political strength when it comes to flagging through the merger. On one side: much of the political establishment and the big telecoms groups, on the other the French competition authorities and, presumably, Iliad (which owns Free, the original price disrupter).

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