Bouygues CEO turns up pressure on Orange in phone merger talks

Bouygues turned up the pressure in the talks to sell its mobile phone division to Orange, demanding a stake of at least 10% in its bigger rival and saying there’s a 50% chance the deal won’t happen.
A stake of 10% to 15% in Orange “would be fine,” but anything less would be rejected, chief executive officer Martin Bouygues told reporters at press conference in Paris yesterday. The deal is valued at as much as €10bn ($11bn).
“If we don’t reach a win-win deal for all, we’ll pursue our standalone strategy,” the executive said after the French construction and telecoms group reported better-than-estimated profit for 2015. “I’m interested in having a stake in Orange’s capital to benefit from future value creation in France and abroad.”
Talks with Orange need to be completed by the end of March to limit disruption to clients, employees and the market itself, the CEO said. Faced with a price war in the French mobile-phone and Internet market, he opted to negotiate the sale of Bouygues Telecom to Orange in exchange for cash and shares.
Shares of Bouygues rose 0.1% to €34.67 at 11:36am in Paris, while Orange lost 2.2% to €15.63.
Bouygues Telecom’s earnings before interest, taxes, depreciation and amortisation rose 8% last year to €752mn, in line with a target of €750mn, as it eliminated jobs and other costs. Revenue climbed by 2%, after the carrier added 769,000 mobile clients and 360,000 fixed broadband customers.
Combining the division with Orange would create a French phone giant. To overcome antitrust opposition, Orange would sell part of Bouygues Telecom’s assets to Numericable-SFR and Iliad, the No 2 and 3 operators in the French market in terms of clients. In June, Bouygues rejected a €10bn offer from Numericable.
Bouygues has no plan to get a bigger stake in Orange than the French government “for now,” the CEO said. He said he can’t forecast what the government will do with its Orange stake in the future. A shareholder pact between Orange and the French government isn’t in the cards, he said.
As part of a deal with Bouygues, France is willing to allow its Orange stake to be diluted, clearing one potential hurdle to a transaction, a person familiar with the matter said this month. The government holds about 23% of Orange, the former state phone monopoly, and wants to remain the largest shareholder and retain a blocking minority in terms of voting rights, the person said.
For Bouygues as a whole, operating profit before one-time items climbed 6% to €941mn in 2015, the Paris-based company said in a statement. Analysts had estimated €880mn on average.
“The group’s transformation strategy started to produce results in 2015,” Bouygues said in the statement. “Thanks to the strategy of transforming its business segments, the group should continue to improve profitability in 2016.”