Bouygues ups its offer for SFR and then looks for more

Ian Scales
By Ian Scales

Mar 26, 2014

Today the heat was raised again in the fight to take over SFR in France. Bouygues is understood to be seeking further financial backing with a view to buying Vivendi out of SFR completely. This has upped the pressure on Vivendi and Altice which are currently negotiating on Altice’s initial offer.

Backstory: the French political establishment is desperate to find a way to re-establish the stitch-up that used to be the French mobile market, pre the arrival of disruptor Free. It thought that chance had come when media conglomerate, Vivendi, announced that it wanted out and put its mobile network, SFR, up for sale.

Sure enough, the bids came in. One from Patrick Drahi, founder of holding company Altice which wanted to bring SFR together with its cable company, Numericable; the second bid came from rival Bouygues which also (to placate the competition authorities) offered up its own network to be sold to the fourth player, Xavier Niel of Iliad (who owns Free, the cause of all the trouble in the first place) in return for combining the Bouygues and SFR mobile business on SFR’s network.

The Altice bid involves a cash and share arrangement. Vivendi would get €11.75 billion in cash and a minority (32 per cent) stake in the resulting new company. Bouygues’s plan was quite similar (except for the existing network-shedding bit) with Vivendi getting €11.3 billion and 42 per cent.

Vivendi decided to go into serious negotiation with Numericable on the basis that the deal would most likely get past the regulators. This clearly did not go down well with the industry Minister M. Montebourg who seemed to have been working hard for the alternative Bouygues deal he’d calculated would solve the rogue Free problem by reducing the price competition - despite the fact that Iliad boss, Xavier Neil, had pledged to keep on with the rock bottom prices no matter what the outcome.

Why the partial industry minister? The government seems to have convinced itself that a rash of layoffs are in prospect if the four network mobile market remains. This would lead to violent strikes and general disenchantment all round. The solution it wants is a ‘protected’ three-player market, with the former ‘challenger’ (Free) brought into the fold.

When Vivendi picked Altice, the game was declared to be pretty much over. Vivendi and Altice were supposed to settle down and hammer out a detailed deal over three weeks. If agreement remained out of reach other bids could be considered.

But this was to ignore the determination of both Martin Bouygues (owner of Bouygues - the other bidder) and the M. Montebourg, the industry minister. Suddenly the domicile and tax situation of Altice boss, Patrick Drahi, was up for scrutiny in the French press. Since M. Drahi is a Swiss resident and Altice is registered in Luxembourg, the knives were brought out by M. Montebourg who demanded that Drahi, if successful, would need to bring his fortune and home back to Paris to look after the business properly. If not Montebourg would be obliged to carry out a spot of close fiscal scrutiny of his affairs should the deal go through.

In the interval, perhaps heartened by the apparent support of the industry minister, Bouygues upped the offer last week by €1.85 billion to €13.15 billion with Bouygues to get a 67 per cent stake in SFR, just to pile some pressure on the Altice/Vivendi negotiations.

Today, however, even more pressure is being applied. According to Reuters, Bouygues is "sending a dossier to a large spectrum of players, banks, insurers, private equity firms", to see if it can raise enough funds to provide Vivendi with a ‘full exit’ from SFR.

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