French Telecom Bouygues Rejects Buyout Bid from Rival Numericable-SFR

NEW YORK (The Deal) -- French building and telecoms conglomerate Bouygues has rejected Patrick Drahi's €10 billion ($11.2 billion) bid for Bouygues Telecom, claiming the business is poised for strong growth and that a takeover would struggle to get past regulators.

Bouygues board issued its verdict on the bid late on Tuesday, following an hours-long meeting to consider the merits of Drahi's plan to combine his Numericable-SFR operation with Bouygues Telecom to create France's largest mobile services provider.

"The board is convinced that the telecoms market is at the dawn of a new era of growth [and] that Bouygues Telecom is particularly well positioned," Bouygues said. "The offer represents significant execution risk ... particularly in terms of competition law in both the fixed and mobile markets."

Bouygues also cited the job losses that would arise from the deal as a reason for its rejection. Numericable-SFR is France's No. 2 mobile service provider, ahead of Bouygues Telecom and behind Orange  (ORAN).

Shares in all of France's major telecoms companies tumbled Wednesday. Investors had pinned their hopes on a deal that would reduce the number of mobile and Internet service providers in France from four to three, easing the competitive pressures that have made the country one of Europe's least profitable telecommunications markets.

The rejection will, however, please the French government, which had rallied against a deal, claiming it would cost jobs, increase costs for consumers and hurt investment in the sector. France is preparing to auction 4G mobile spectrum and has already budgeted for €2.5 billion from the sale, which would have been adversely affected by the combination of two of the four bidders.

Bouygues' decision appeared to close the door on its suitor. The company pointedly didn't mention price as a factor in its rejection, a point reiterated by President and CEO Martin Bouygues during an interview on French radio Wednesday morning. "I don't think that a business is a product like any other," he told RTL. "Not everything is for sale."

Drahi's €10 billion bid for Bouygues Telecom valued the target at about 14.4 times its 2014 EBITDA of €694 million. That offer was worth almost as much as the total €11.3 billion market capitalization of Bouygues, which makes most of its earnings through its construction operation.

"Drahi could increase his offer to as much as €13 billion or €14 billion once you take into account the synergies he could realize," said a French telecoms industry executive at a rival company, who asked not to be named. "I wouldn't bet on him going to that level, but it is possible, there are a lot of savings on offer."

Bouygues' ownership structure means the company is unlikely to be pressured into selling by its shareholders. Martin Bouygues and his brother Olivier own 20.9% of Bouygues and control 27.3% of the voting rights, while employees own 23.3% and have 30.6% of the voting rights.

Drahi's bid included a side-deal with France's No. 4 telecom Iliad SA, which had agreed to buy towers and bandwidth to help ease Numericable-SFR's acquisition past regulators.

Altice SA, Drahi's telecom's holding company and the majority owner of Numericable-SFR, could not immediately be reached for comment.

Shares in Bouygues traded Wednesday morning on the Paris exchange at €35, down €3.02, or almost 8%, on their Tuesday close. Shares in Numericable-SFR were at €49.06, down €5.40, or 10%. Altice, which trades on the Amsterdam exchange, fell to €122.20, down €7.80, or 6%. Orange shares traded at €14.53, down €0.41, or 2.8%. Iliad shares tumbled to €215.30, down €12.90, or 5.7%.

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