The end of merger discussions between Bouygues and Orange in France is a blow to operator consolidation hopes, as Bouygues shed some light on reasons for the deal’s failure.
Orange gave no indication as to why talks had failed after three months of haggling but Bouygues was more open, and also downbeat. In a statement, the company declared “the possibility of consolidation is now ruled out for the long term”.
The stock market tended to agree with that sentiment, as share prices fell sharply this morning for the four companies that operate mobile networks in France, with the risk of a price war flaring up again.
Bouygues, which pledged itself to a standalone strategy, said it was impossible to find agreement with Orange on all of four critical points: protecting the interests of its employees post-takeover; the level of its stake in Orange and related governance; execution risk; and Bouygues Telecom’s valuation.
According to the Financial Times (FT), the French government was determined to minimise Bouygues’ power as a shareholder. The deal would have left Bouygues as Orange’s second-largest shareholder with a 23 per cent stake.
Sources pointed to Emmanuel Macron, the country’s economy minister, as a prime disruptor of the deal. He insisted on Bouygues agreeing not to raise its stake in Orange for seven years, and to defer use of double-voting rights under French law for a decade, said the FT.
But there were also other factors at play, said sources. These included the attitude of the country’s two others operators, Numericable-SFR and Iliad, towards buying Bouygues Telecom’s assets, which was necessary for regulatory clearance.
Bouygues was unhappy with the outline of a deal agreed between Orange and Free/Numericable-SFR about acquiring assets. It felt the arrangement would leave number four player Iliad in too strong a position. Another source said Iliad wanted clauses in any agreement that enabled it to drop out of the deal without incurring any penalties.
Iliad put out a statement of its own, saying it will carry on its own development following failure of the talks, focusing on the rollout of high-speed mobile and fixed networks. Likewise, Orange said it will now pursue the development of its strategic plan, announced in 2015.