No merger as French telecoms operators fail to reach $15b deal

The deal by Bouygues and Orange was attempted amid a price war after the entry of low-cost operator Iliad hit the telecoms industry's margins hard. Both parties confirmed the collapse of talks.
The deal by Bouygues (above) and Orange was attempted amid a price war after the entry of low-cost operator Iliad hit the telecoms industry's margins hard. Both parties confirmed the collapse of talks.PHOTO: AGENCE FRANCE-PRESSE
The deal by Bouygues and Orange was attempted amid a price war after the entry of low-cost operator Iliad hit the telecoms industry's margins hard. Both parties confirmed the collapse of talks.
The deal by Bouygues and Orange (above) was attempted amid a price war after the entry of low-cost operator Iliad hit the telecoms industry's margins hard. Both parties confirmed the collapse of talks.PHOTO: AGENCE FRANCE-PRESSE

PARIS • Talks between Orange and Bouygues on a deal to create a dominant French telecommunications operator have collapsed, ending an attempt to ease a price war that has ravaged operators' margins.

The failure on Friday of the proposed €10 billion (S$15.3 billion) cash-and-share deal involving Bouygues Telecom is a blow to the two companies and the French government, which was heavily involved as it has a stake of about 23 per cent in Orange.

The proposed tie-up was widely seen as a make-or-break chance to reduce the number of telecoms groups to three from four and prop up profits, which have been depressed since the arrival of low-cost operator Iliad.

But a stand-off between Mr Martin Bouygues and French Economy Minister Emmanuel Macron about the clout the billionaire would have gained in the former state monopoly had weighed on the talks.

"The two main reasons explaining the failure of these talks are execution risks and the general attitude of the French state," a source close to the matter said.

The risks included the break-up fees involved and the conditions under which each party involved would have been able to withdraw from the deal, the source added.

Orange's position as the No. 1 French telecoms operator meant that an acquisition of Bouygues Telecom would have required selling some of its assets to rivals Iliad and SFR, with which Orange held parallel negotiations.

This added to the complexity of getting a deal done. Apart from Mr Bouygues himself, the talks involved two other influential billionaires, Iliad's founder Xavier Niel and SFR's owner Patrick Drahi.

"It would have been a miracle if they had come to terms," a source close to the matter said.

The failure to reach a deal, which was confirmed by both parties, leaves Bouygues Telecom to go it alone.

"In a market where the possibility of consolidation is now ruled out for the long term, Bouygues Telecom will continue its standalone strategy," Bouygues, the construction-to-media conglomerate, said in a statement.

That could prove difficult for them, Mr Francois Mallet, an analyst at Kepler Cheuvreux, said. "They will all be kicking themselves," he said on BFM Business."The state has a big responsibility in this. The big loser is Bouygues, let's not kid ourselves."

REUTERS

A version of this article appeared in the print edition of The Sunday Times on April 03, 2016, with the headline 'No merger as French telecoms operators fail to reach $15b deal'. Print Edition | Subscribe