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French consolidation hand badly played: Bouygues/Orange deal collapses

Euros hand

via Flickr © Rex Roof (CC BY 2.0)

  • Merger demands too much for Bouygues
  • Orange goes back to Plan A (invest in high speed networks).
  • Bouygues looks forward to life as stand-alone (for now)

The much-vaunted ‘do or die’ effort to re-create a powerful French national telecoms champion and boost mobile service pricing by merging Bouygues Telecom with Orange has come off the rails with a terse statement from the French incumbent (formerly France Telecom): “After in-depth discussions, the Board of Directors of Orange has concluded that an agreement regarding a possible consolidation with Bouygues Telecom has not been reached. The decision has therefore been taken to end the discussions with Bouygues.” (see - Going, going... still here: Bouygues/Orange negotiation deadline moved to Sunday).

According to Reuters, talks to nail a €10 billion merger deal between Bouygues and Orange collapsed on Friday, reportedly because terms couldn’t be agreed due to billionaire rivalries and the French government’s need to keep some level of strategic control over Orange  in which it currently holds nearly a quarter stake. For the French government, a major concern was that its clout would be diluted by the deal and it wanted to hobble Martin Bouygues’ room for manoeuvre. Large egos may also have played a part.

In addition to Martin Bouygues, billionaires Xavier Niel (Iliad) and Patrick Drahi  (SFR) were also involved since, for the deal to get past on competition grounds, both would have had to agree to buy some of the Bouygues network assets. A combination of two deal-making rival billionaires - sensing an opportunity to squeeze the best out of the situation with last-minute demands - and an ideologically opposed politician, in the shape of socialist Economy Minister, Emmanuel Macron (Bouygues was a Sarkozy supporter), proved a toxic mix too far for Martin Bouygues who was reported to have stormed out of at least one meeting.  

Reuters reports that Bouygues was particularly unhappy with minister Macron's demand that his stake in Orange be capped for seven years and that he lose his double voting rights on the Orange board for 10 years.

So what now for Bouygues, which actually initiated the merger talks in the first place?

In a statement the company says that, “in a market where the possibility of consolidation is now ruled out for the long term, Bouygues Telecom will continue its standalone strategy.”  

Orange is also left looking slightly awkward. The problem with hyping up the necessity of market consolidation - as Orange and its industry spear-carriers have been doing - is that if a concerted effort fails you may be left with a confidence deficit amongst your various stakeholders, especially your shareholders.

Not in this case, apparently. Despite all the apocalyptic talk of the absolute necessity for ‘four to three’ mobile market transformation, Orange now says it will “pursue the deployment of its strategic plan, launched in 2015, that is focused on investment in very high-speed broadband networks,” and that “the group confirms all of its financial objectives.”  (see - Orange squeezed but pumps up the Euros in a significant investment boost). So much for the forecast investment drought.

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