By Ruth Bender And Stacy Meichtry
PARIS--French conglomerate Bouygues SA Tuesday rebuffed an offer
from Patrick Drahi for its telecom unit, a blow to the billionaire
investor's efforts to become France's No 1 mobile operator and a
victory for France's economy minister, who vehemently opposed the
deal.
Bouygues said its board of directors unanimously decided not to
pursue the proposal from Mr. Drahi's firm, Altice SA, which
according to people familiar with the matter, offered to pay around
EUR10 billion ($11.3 billion) for rival Bouygues Telecom.
The swift rebuttal defied investors who drove up telecom shares
on expectations that Mr. Drahi's price tag--which valued Bouygues
Telecom roughly twice that of most estimates--would be difficult
for Bouygues Chairman and Chief Executive Martin Bouygues to
reject.
Bouygues said its decision reflects the significant growth
potential it sees in the French market. It said there was also a
high risk the acquisition would have been rejected by regulators.
The company said it was concerned too about the fallout from the
proposed tie-up on jobs in the telecom sector.
The rejection sends a chilling signal to investors who have long
questioned whether business leaders have a free hand in arranging
disruptive deals in France. French Economy Minister Emmanuel Macron
waged a highly public campaign against Mr. Drahi, describing his
bid as a vehicle for "killing jobs."
Bouygues's board didn't bend to political pressure, a person
familiar with the matter said Tuesday. For Mr. Bouygues, the heir
to the founder of the conglomerate, the telecom business has almost
sentimental value, people close to him have said.
Spokespeople for Altice and Mr. Macron declined to comment.
Mr. Macron, a former investment banker, has spent a large part
of his first year in office seeking to lure investors back to
France. He distanced the government from his predecessor, Arnaud
Montebourg, who espoused dirigiste economic policies designed to
exert government control over France Inc. On Wednesday, he is due
to travel to the U.S. to renew his business-friendly pitch to
American investors.
Mr. Macron's intervention in Bouygues, however, reveals how the
minister is using his financial prowess to outmaneuver some of
Europe's most cunning businessmen, from Mr. Drahi to Renault-Nissan
Chief Executive Carlos Ghosn.
The economy minister was fast off the mark in publicly laying
out his case against Mr. Drahi's proposal. The minister learned Mr.
Drahi was homing in on Bouygues last week, according to a person
familiar with the matter, before news of the proposal leaked to the
French media. Mr. Macron then warned an Altice takeover of Bouygues
risked creating a "too-big-to-fail" telecoms operator. He also took
aim at Mr. Drahi's use of debt to fuel his acquisitions, raising
the specter that taxpayers would have to foot the bill if the
telecoms group ran into financial trouble.
On Tuesday evening, Mr. Macron met with the billionaire to talk
about preserving jobs. Leaving the ministry, Mr. Drahi remarked:
"The ball is now in the opposite camp."
A short while later, Bouygues announced it was shunning the bid,
echoing Mr. Macron's concerns about potential job losses if the
deal went through.
"The board took a close look at the consequences of
consolidation on the labor market as well as the social risks
necessarily tied to such an operation," Bouygues said.
For Mr. Drahi, the decision is a major setback in his quest to
create France's largest telecom operator that would have allowed
the group to create massive cost savings and assure higher profit
growth.
Mr. Drahi last year bought SFR, France's Number 2 mobile
company, from Vivendi SA for $23 billion. Since merging the mobile
company with his cable company Numericable, Altice drastically cut
costs, outraging the French government and worker unions.
Berenberg analysts estimated that Altice would have been able to
create synergies of around EUR850 million a year in a Bouygues
Telecom merger.
A merger would have helped all French operators shore up profits
by easing competition, analysts say. French telecom companies have
suffered sharp drops in revenue and profit since the arrival of
low-cost rival Iliad SA on the mobile market three years ago
sparked a bloody price war.
"We are convinced that the French telecom market can't support
four operators in the long term," said a spokesman for state-owned
Orange SA, France's largest telecom company.
Operators have been pushing hard to merge.
Besides Altice, Iliad has also made attempts to buy Bouygues
Telecom in the past year and even Orange tried to find a way to
consolidate but talks always collapsed. When Bouygues fought
against Altice last year over SFR, the group argued that it would
make sense to create a national champion to better compete in an
Internet age.
Since then, Mr. Bouygues has played hardball. Asked in February
if he would sell Bouygues Telecom, he replied: "Would you sell your
wife?"
Mr. Bouygues began dreaming of entering the telecoms business
back in the 1980s and later jumped on the opportunity to buy
France's third mobile license, five years after being handed over
the power from his father.
Bouygues in the past year has tried to get profits back on track
by cutting jobs and launching cheaper broadband offers to win
customers. The company said Tuesday profit margins should return to
levels before Iliad's arrival in 2012, driven by consumers rapid
shift to consumer data-heavy services via their mobile phones.
The risk of not getting a green light from regulators also
weighed in its decision, Bouygues said, at a time when European
regulators are divided over the benefits of telecom mergers.
Any deal would have face a review from France's competition
authority that would likely have lasted eight or nine months due to
the size of the proposed merger.
Write to Ruth Bender at Ruth.Bender@wsj.com and Stacy Meichtry
at stacy.meichtry@wsj.com
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