Bouygues’s latest SFR offer may still fall short

March 21, 2014

By Quentin Webb

The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

Bouygues’s latest pitch for SFR may still fall short. The French building, TV and telecoms group has made a new offer for Vivendi’s mobile unit, with 1.85 billion euros more cash and heavyweight backers. That puts extra pressure on preferred bidder Patrick Drahi, soon after he began three weeks of exclusive talks to buy France’s no. 2 wireless carrier. But Bouygues still poses greater antitrust risks. It may need to offer more equity in the combined vehicle – and a big break fee.

Bouygues now proposes 13.15 billion euros cash – 1.4 billion euros more than Drahi is offering via his Numericable and Altice vehicles. The interloper believes that cash is Vivendi’s main priority. It has enlisted help from state bank CDC and a couple of French billionaires. That looks like a way to ratchet up political pressure on the seller. France’s firebrand industry minister has repeatedly criticised what is ostensibly a private-sector deal.

Oddly, though, Bouygues’ latest proposal offers less total value to the seller. Including synergies, it is promising Vivendi 17.4 billion euros, with 21 percent in the merged business. Two weeks ago it offered a total 19 billion, with a 46 percent stake.

To be sure, cash trumps uncertain future synergies. But offering 8 percent less all-in while creating 27 percent more value for yourself – on Jefferies estimates – is an odd way to win back a reluctant seller. The bank suggests lifting the stake to 30 percent. That would give Vivendi more, while maintaining the value creation Bouygues originally targeted.

In any case, the big hurdle is still that a Bouygues deal would cut France’s mobile market from four to three players, unlike Drahi’s “quad-play” merger. Asset sales to the maverick Iliad, as Bouygues promises, could preserve competition. But regulators will take some convincing, which explains Vivendi’s reservations. A big break fee, payable by Bouygues if watchdogs killed the deal, would help bridge this gap.

The one clear winner is Vivendi. The French conglomerate’s other disposals, such as video-games maker Activision, have been underwhelming. But here it has two eager suitors – and now some extra power to demand a bit more from Drahi.

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