Orange and Bouygues $11.4 billion French telecoms deal collapses

(By Mathieu Rosemain, Gwénaëlle Barzic, & Sophie Sassard, Reuters) – Talks between Orange and Bouygues on a deal to create a dominant French telecoms operator collapsed on Friday, ending an attempt to ease a price war that has ravaged operators’ margins.

The failure of the proposed 10 billion euro ($11.4 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 around 23 percent in Orange.

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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 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, sources had told Reuters earlier.

“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 told Reuters.

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 <ILD.PA> and SFR <NUME.PA>, with which Orange held parallel negotiations.

This added to the complexity of getting a deal done, sources said, as apart from 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.

Going it alone

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

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“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, Francois Mallet, an analyst at Kepler Cheuvreux, said.

“They will all be kicking themselves,” Mallet said on BFM Business, adding: “The state has a big responsibility in this. The big loser is Bouygues, let’s not kid ourselves.”

A source at the French Economy Ministry said that the main hurdle had been the risks involved in getting a deal across the line, with competition concerns a factor.

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“It was an extremely complex deal and there was the question of the competition authority hanging,” the source told Reuters.

The tie-up would have made Bouygues the second-biggest shareholder of Orange after the French state, whose stake would have been diluted.

The French Economy Ministry had asked Bouygues to accept capping its potential stake in Orange for seven years, under a so-called standstill clause.

It had also asked it to accept giving up for 10 years the double-voting rights Bouygues would get as a long-term investor in Orange, another source said.

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(Reporting by Mathieu Rosemain, Gwenaelle Barzic, Michel Rose and Sophie Sassard; Editing by David Evans and Alexander Smith)