• French telcos Bouygues Telecom, Iliad and Orange have jointly offered €17bn for the country’s fourth major operator, Altice France (SFR)
• The telco trio want to each take various parts of SFR’s operations and assets to build greater scale
• Altice France’s owner, Patrick Drahi, is known to be keen to sell
• But the opening €17bn gambit has been instantly rejected    

Only hours after receiving a €17bn joint takeover offer from a trio of French operators – Bouygues Telecom, Iliad (Free) and Orange – Altice France, which operates under the brand SFR, has rejected the bid from its telco peers. 

The non-binding offer by the three telcos to jointly acquire most of the assets of SFR, France’s other major infrastructure-based operator, was submitted late on Tuesday 14 October in a move that, if a compromise can be reached, could test the appetite of European regulators for in-country telecom operator consolidation, something that lawmakers have consistently resisted due to competition concerns. 

But even though Altice France’s owner, billionaire telecom tycoon Patrick Drahi, is keen to sell, he’s not going to accept the first offer thrown over the M&A fence. Reuters reports it has seen an internal memo sent by Altice France CEO Arthur Dreyfuss in which he tells staff that the “offer has been immediately rejected”. Orange has issued a short note to say it had taken note of the rejection, as has Bouygues Telecom.  

So if the trio are to get a deal over the line, they will have to dig deeper into their M&A war chests, something (surely!) they would have anticipated. 

So what has Altice France rejected? 

In a nutshell, the trio want to acquire most of SFR’s assets in France, which they value at €17bn (excluding debt), though they are not offering to acquire a number of Altice France assets, including international IT services unit Intelcia, the minority stake in datacentre operator UltraEdge (which is majority owned by Morgan Stanley Infrastructure Partners), rural fibre broadband networks unit XP Fibre (an asset that Drahi has been trying to sell separately), and Altice Technical Services, as well as the Altice group’s activities in French overseas departments and regions.

SFR generates annual revenues of around €10bn and ended June this year with 14.8 million mobile and 5.9 million fixed broadband customers. 

Under the terms of their current offer, each of the three telcos would acquire specific SFR operations:

• Consumer (B2C) operations would be split between all three
• Enterprise (B2B) would mostly be acquired by Bouygues Telecom and partly by Iliad
• Other assets (network infrastructure and spectrum) would be split between the three, though Bouygues Telecom would take SFR’s mobile network in non-urban areas.   

“The split of price and value would be around 43% for Bouygues Telecom, 30% for Free-iliad Group and 27% for Orange,” noted the trio.  

The joint bid had been expected. In early October, Altice France completed the financial restructuring process it had agreed in February with its creditors, a move that reduced its debt pile by €8.6bn to the still substantial sum of about €15.5bn. Drahi managed to retain control of Altice France with a 55% stake and, with the restructuring process now completed, he can now move ahead with the sale of Altice France to help reduce the overall debt burden of his broader Altice empire. 

Bouygues, Iliad and Orange have not been shy about their plans to team up on a takeover offer: Like many telcos around Europe they are keen to gain greater scale in order to strengthen their financial foundations. But they also knew that such an M&A move, which would reduce the number of major telcos in France from four to three, would face fierce regulator scrutiny on a national and regional level. 

In late July, when reporting her company’s first-half results, Orange’s CEO, Christel Heydemann, began laying the foundations for a regulatory charm offensive, noting that “a clear case for a four-to-three market consolidation” needed to be made in order to get the green light for any in-country consolidation process, but noted that it might be difficult as the benefits of such a move are “not completely obvious” to lawmakers and regulators. The Orange CEO added that Orange believes “there’s a need for consolidation – this is true in France and for Europe… we welcome the UK decision, moving from four [operators] to three”, she said, referring to the recent merger of Vodafone UK and Three. “We are obviously ready to engage and there are preliminary discussions between operators on what could happen,” added Heydemann at the time. 

The telco trio argue that such an acquisition would “maintain a competitive ecosystem for the benefit of consumers” – a claim that will no doubt be strongly contested – and result in greater investment in “superfast network resilience, in cyber security and in new technologies, such as artificial intelligence”, as well as “consolidate control over strategic infrastructure in France”.  

But the apparent immediate rejection of the offer will send the telco partners back to the drawing board, though they can hardly be surprised at having their opening offer rebuffed. It’s hard to imagine Drahi wouldn’t demand a much higher price for SFR, which is generally thought to be worth at least €19 to €20bn, and Drahi is a tough negotiator who has little time for low-ball offers. His negotiations in recent years regarding the potential sale of Altice Portugal, for which STC offered €8bn, are a clear sign of that, as Drahi abandoned those talks because he deemed the final offer to be too low.  

But Drahi wants a deal and it seems likely that a compromise will be reached, though that would only be the start of a complex and legally messy process involving four telcos, French trade unions and multiple regulators. 

Kester Mann, director of consumer and connectivity at research firm CCS Insight, believes that if such a deal is agreed, it would be “one of the most significant moments in France’s telecom history, irreversibly changing the mobile and fixed-line landscape in one of Europe’s biggest markets,” though he stresses that the four-to-three aspect of the consolidation will “invoke strong scrutiny”. 

The analyst highlights that “the complex nature of the deal, combined with the major challenge to gain approval, underlines the operators’ determination to come together in pursuit of scale, growth and improved returns in one of Europe’s many highly competitive markets.”

However, notes Mann, “approval of the Vodafone-Three merger in the UK last year has brought renewed optimism that European regulators may finally be taking a more lenient view on consolidation.” And he adds that “the idea of carving up an operator is not unprecedented. In 2020, for example, Telefónica, Claro and TIM Brasil acquired the (mostly mobile) assets of Brazilian operator Oi.” 

Bouygues, Iliad and Orange will no doubt bear all of this in mind as they figure out their next step. 

- Ray Le Maistre, Editorial Director, TelecomTV