Altice offer for Bouygues Telecom lifts shares across French sector

PARIS (Reuters) - European group Altice has made an offer to buy France's BOUYGUES (EN.PA)Telecom through its subsidiary Numericable-SFR , the companies said on Monday, sending share prices up across the French telecoms sector.

Bouygues Telecom's parent group Bouygues said its board would meet on Tuesday to discuss what it called Altice's "unsolicited offer", adding that no negotiations between the two sides were underway. "Altice will update the market in due course," it said.

Neither party disclosed the value of the offer, but sources told Reuters at the weekend that Patrick Drahi, the controlling shareholder in Altice, had submitted a bid in recent weeks worth around 10 billion euros ($11.3 billion) in cash.

Investors cheered the prospect of a merger that would generate big cost savings and potentially calm a brutal price war that has raged in France since 2012 when low-cost operator Iliad entered the mobile market.

Drahi is set to discuss the matter on Tuesday with French Economy Minister Emmanuel Macron, according to a person familiar with the matter. The government is concerned that the focus on such deals could slow investment in mobile and high-speed broadband and that developments could upset the smooth running of an upcoming auction of air waves for mobile networks, the person said.

Shares in Altice and Numericable-SFR were up by 15.4 and 13.7 percent respectively by 8 a.m. EDT, while Bouygues was up 14 percent. French market leader Orange rose 7 percent, and Iliad was up by nearly 13 percent.

Analysts value Bouygues Telecom at between 5 and 6.5 billion euros, making a 10 billion-euro bid appear generous for a company that has been posting losses since Iliad's assault on the mobile market.

The offer is also higher than previous bids made for Bouygues Telecom, including a joint one last year from Orange and Iliad which was valued at around 5 billion euros and one from Numericable earlier this year worth 8 billion euros.

The entire market value of the Bouygues conglomerate, which includes businesses in roads, construction and television, as well as telecoms, stood at 11.3 billion euros before the latest offer was made public.

If completed, the deal would put Numericable-SFR ahead of state-backed Orange in terms of subscribers, and cut from four to three the number of competing network operators in Europe's third-largest telecoms market.

Buying Bouygues would allow Numericable-SFR to reap massive cost savings by cutting staff and rationalizing stores, among other measures. Berenberg analysts put the savings at 850 million euros per year.

Two sources familiar with the matter said Drahi has already secured financing with banks BNP Paribas and JP Morgan.

POLITICAL ISSUES

But it remains to be seen if the deal will get done, especially since the billionaire founder of Bouygues Telecom, Martin Bouygues, has said repeatedly in recent months that he does not want to sell.

There are also political issues for Drahi and Altice to overcome. The French government has already signaled its opposition to the proposed deal because of concerns over its impact on investment in communications infrastructure and employment.

The state is preparing to auction off radio frequencies for use by 4G mobile broadband networks this summer and the government is counting on raising at least 2.5 billion euros that has already been earmarked for the military budget.

If Numericable-SFR buys Bouygues, there would be one fewer bidder for the 700 megahertz spectrum, potentially lowering the proceeds for the state.

In a separate statement, Numericable-SFR and Iliad confirmed they were in exclusive talks over selling a portfolio of Bouygues assets to Iliad if the first deal goes through.

In an effort to allay competition concerns, Iliad would take over many of Bouygues Telecom's mobile masts and radio spectrum, two sources said on Sunday. The companies did not say anything about how Bouygues' network assets would be valued.

Such an arrangement would be a massive boost for Iliad, which has been rushing to expand its own mobile network and owns far less mobile spectrum than its three larger competitors.

Stephane Beyazian, analyst at Raymond James, put the chances of success for the Altice deal to buy Bouygues Telecom at 50 or 60 percent due to "antitrust risk".

"Bouygues' board will likely accept the offer, in our view, assuming there is a material cash proportion," said Beyazian.

"We also believe that the board will need to consider that they may not achieve a better value for this asset, even assuming that the ongoing restructuring plan is successful."

(Editing by Pravin Char and Greg Mahlich)