The battle for French telecoms giant SFR is over, but is the war just beginning? In what is now the biggest junk bond sale on record, totalling €8 billion (£6.6 billion), the multinational Altice successfully fended up a counter offer for SFR from rival company Bouygues Telecom. SFR will be merged with the French cable group Numericable, Altice’s most recognizable brand, essentially transforming the country’s telecommunications sector. However, the government, which largely preferred Bouygues, may yet have a card to play, counting on the help of Bruno Lasserre, the head of the French competition authority.
Dragged out over a period of months, the bidding over SFR was fought tooth and nail between two French billionaires: Patrick Drahi, the entrepreneur that founded Altice, and Martin Bouygues of the Bouygues Group. Even when Vivendi, the parent company of SFR, agreed to enter exclusive negotiations with Numericable on March 14th, the choice of buyer was far from being set in stone. Bouygues responded by launching a series of counteroffers, the final one increasing the bid’s cash portion to €15 billion (£12.3 billion).
Enter the government
In typical French fashion, the government wasted no time jumping into the fray. Arnaud Montebourg, the recently-appointed Economy Minister and self-proclaimed “state interventionist”, attempted to influence the outcome of the sale by publicly declaring his preference for Bouygues. An old friend of Martin Bouygues, Montebourg was reportedly angered at Vivendi’s decision to go with Altice, warning after the sale that the government would remain “extremely vigilant” over the company’s employment commitments. Beyond the government’s vocal support for Bouygues, the former even moved to back up the company’s final counteroffer financially, using state money from the Finance Ministry to help Bouygues reach the €15 billion it promised.
Concerns over competition law were central to the decision to go with Altice. A Bouygues-SFR merger would have combined the second and third biggest French telecoms operators, resulting in an entity holding a whopping 51% of the mobile market. It is in part because of concerns that Bouygues’ offer would be rejected by France’s competition authority that Vivendi went with Patrick Drahi’s offer.
The current irony is that, though Vivendi went with the offer that was widely regarded to not dramatically harm competition in the telecoms market, the competition authority, headed by veteran bureaucrat Bruno Lasserre, is subjecting the deal to a lengthy 9-month “extensive study” before giving its blessing to Numericable and SFR. The announcement shocked many involved in the deal, leading some to wonder whether the 9-month wait reflected the government’s displeasure with Vivendi’s choice of buyer.
Questionable economic priorities
Even stranger than the decision to undertake such an extensive study before allowing the merger was that Bruno Lasserre, normally a by-the-book civil servant, chose to announce this decision to the press on April 14th, despite the fact that his office’s code of conduct prohibits such interventions. While theories that the competition authority is a victim of political manoeuvring risk making pundits sound like conspiracy theorists, one certainty is that the decision to stall the SFR-Numericable deal will negatively impact the already ailing French economy.
Firstly, a deal of this magnitude should not be left up in the air for any length of time, let alone nine months. The thousands of employees currently working for the merging companies will be the first to say that. Secondly, as any board member knows, the aftermath of a high-stakes acquisition is a pivotal time for a company; investors need to be assured that the merger will progress smoothly before fuelling further activity. Numericable, and France in general, needs investment dearly, but those with capital will be reluctant to invest in a country or a sector where the rules of the game seem opaque or subject to the government’s whims.
In sum, the recent acquisition of SFR by Altice demonstrates both the best and worst of modern-day France. On one hand, the battle of the telecoms giants shows the dynamism of the sector and the wealth of investment opportunities in the world’s fifth largest economy. On the other, the affair shows France’s worrying tendency to overly meddle in its markets, clinging to the remnants of its industrial age rather than looking to the future.
