The latest pitch by Bouygues for SFR, Vivendi’s mobile phone unit, may still fall short. The French building, TV and telecommunications group has sweetened its offer with 1.85 billion euros more cash and heavyweight backers. That puts extra pressure on the 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 company â€" and a big breakup fee.
Bouygues now proposes 13.15 billion euros in cash â€" 1.4 billion euros more than Mr. Drahi is offering through his Numericable and Altice vehicles. Bouygues believes that cash is Vivendi’s main priority and has enlisted help from the state bank Caisse des Dépôts et Consignations 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, the latest Bouygues 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 euros, 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 â€" on Jefferies estimates â€" 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 estimated.
In any case, the big hurdle is still that a Bouygues deal would cut France’s mobile market to three players from four, unlike Mr. 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 breakup 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, like the video game maker Activision, have been underwhelming. But here it has two eager suitors â€" and now some extra power to demand a bit more from Mr. Drahi.
Quentin Webb is a columnist for Reuters Breakingviews. For more independent commentary and analysis, visit breakingviews.com.
