SFR Bids Sure to Draw Attention from Brussels

NEW YORK (The Deal) -- France's Vivendi late Wednesday said it had received two offers for its Societe Francaise de Radiotelephone, or SFR, cellular unit and would now allow its supervisory board to evaluate the approaches, one of which may spark similar regulatory concerns to pending telecom takeovers elsewhere on the Continent.

Paris-based Vivendi said Numericable Group, along with its Altice parent company, and SFR rival Bouygues have submitted offers, helping Vivendi focus on entertainment content and bringing a Europewide phone consolidation to France.

"Vivendi's supervisory board will now examine these offers. It will consider all options available regarding the future of its subsidiary and the group, in the best interests of employees and shareholders," the company said.

Vivendi has been slimming down to focus on entertainment assets including Universal Music Group and broadcaster Canal Plus. It had hoped to list and hand SFR to shareholders through a 12 billion ($16.5 billion) spinoff. However, strong interest from companies hoping to gain bulk to better compete against incumbent Orange raised the option of a sale.

Bouygues, of Paris, said its offer values SFR at 14.5 billion. The deal would give Vivendi 10.5 billion in cash as well as a 46% stake in the expanded Bouygues/SFR. It's already lined up financing with JPMorgan Chase (JPM) and seven other banks, according to the Financial Times.

Meanwhile, Numericable and Altice, backed by French billionaire Patrick Drahi, were planning to bid 14.8 billion. That deal would include 11 billion in cash and a 750 million capital injection raised through the sale of new Altice shares. Altice would also fold in 3 billion in Numericable cable assets. Ultimately Vivendi would have 32% of the expanded Numericable, a source said earlier this week.


Investors reacted strongly to the potential bidding war between financier Drahi's cable assets and the phone company led by Martin Bouygues.Shares in Numericable tumbled 8.1%, or 2.49, to 28.11. Bouygues shares jumped 9.9%, or 2.835, to 31.61, while Vivendi gained less than 1%, or 0.19, to 20.755.

While both bidders have made promises to protect jobs, the Numericable auction is less likely to trigger concern in Brussels. Should Bouygues win, it would create the country's biggest mobile provider and cut the number of wireless services companies to three providers from four.

Eliminating a top-four competitor has become a key goal among telecommunication providers battling stiff competition and tight margins, and a major sticking point with regulators. Spain's Telefonica has already irked the European Commission with plans to buy German provider E-Plus from Royal KPN. Hong Kong's Hutchison Whampoa is also at odds with Brussels over plans to buy the Irish unit of Telefonica.

Both deals would cut the playing field to three from four. Analysts have suggested companies could win approval of the deals by selling off wireless frequencies and guaranteeing cut-rate access to their networks to third-party cellular resellers, which are especially popular in Germany.

The sheer number of 4-to-3 deals may however help the buyers since it highlights the desperation of telecommunication companies needing consolidate in Europe, one of the world's most mature cellphone markets.

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