Martin Bouygues might be about to do fellow telecoms billionaire Patrick Drahi a bit of a favor.
Drahi’s Altice NV is sitting on 53 billion euros ($66 billion) of debt, with the next major tranche, some 9 billion euros, due in 2022. Should France’s Bouygues SA -- a construction and phone conglomerate -- make a bid for Altice’s French telecoms assets, as Bloomberg News reported it is considering, that would be a rapid way to reduce the burden.
Leaving aside whether Drahi can stomach this (France is pretty much his home turf), a big question is whether such a deal would get regulatory clearance. Combining Altice’s SFR business with Bouygues’ French telecom operations would create a company of almost the same size as former national carrier Orange SA, before any possible remedies are taken into account. Crucially, it would cut the number of providers from four to three.
Prior efforts to consolidate the French market have failed, most notably the talks between Bouygues and Orange in 2016, which would have seen the former take a large stake in a merged company. That deal ultimately met stiff opposition from then economy minister Emmanuel Macron. But there was a significant difference: the French state is the biggest shareholder in Orange and the prospect of handing that mantle to a private investor -- even a respected one like Martin Bouygues -- was politically unpalatable.
Macron, a former investment banker, doesn’t seem opposed to a reduction in operators in principle. It just has to be the right combination. Orange CEO Stephane Richard has said publicly that he wants consolidation in France, but that his company can’t be an active participant. That won’t stop the former civil servant from trying to acquire some of the assets that Bouygues would no doubt have to divest as part of an antitrust remedies package.
Richard might face a stronger competitor. But getting back to three big mobile operators has been something of a holy grail in the French industry since Xavier Niel’s Iliad SA burst on to the scene, tearing through the market and driving down prices.
Drahi would no doubt feel bruised by giving up on SFR, where he managed to slash costs while failing to generate much growth. But more of his attention has been focused on the U.S. after he splurged $18 billion to acquire Cablevision in 2016, and a big move would go a long way to quieting the debt Cassandras.
SFR still requires huge network investment and Bouygues, an experienced operator who built his fortune in the construction and real estate business, is teaming up with investment firms including CVC Capital Partners, according to Bloomberg News. That would also help get around his own aversion to leverage.
Previous signals from the Drahi empire have suggested that he has no need to engage in panic selling. There’s cash in the bank, free cash flow should turn positive again this year, and that big refinancing is four years off. Still, with SFR looking like the sick man of French telecoms, there’s no guarantee of a sustained recovery in a four-player scrap -- and 53 billion euros of debt is 53 billion euros of debt. Bouygues may be the soft landing that Drahi needs.
This column does not necessarily reflect the opinion of Bloomberg LP and its owners.
Alex Webb is a Bloomberg Gadfly columnist covering Europe’s technology, media and communications industries. He previously covered Apple and other technology companies for Bloomberg News in San Francisco.
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