High Stakes in Cellphone Battle of the Billionaires in France

Article excerpt

A $20 billion battle for control of a mobile phone operator is testing President Francois Hollande's willingness to let market economics work, while worrying consumer advocates about competition.

A $20 billion battle for control of a French mobile phone operator is testing the limits of President Francois Hollande's willingness to let market economics work, while alarming consumer advocates who worry that the government's favored solution would reduce competition.

Whatever the outcome, the winner will be one of the two billionaires vying to acquire SFR, the mobile unit of the Vivendi media and entertainment conglomerate, with 21 million cellphone subscribers. Only the mobile carrier Orange, with about 27 million subscribers, is bigger.

Leading one team of bidders, and the government's favored contestant, is Martin Bouygues, the scion of one of France's biggest family fortunes and boss of the country's No.3 mobile player, Bouygues Telecom, with 11 million customers.

His rival is Patrick Drahi, an enigmatic French-Israeli entrepreneur who controls the largest French cable television operator and is seeking to break into the mobile market.

The outcome could be decided as soon as Friday when Jean-Rene Fourtou, Vivendi's chairman and chief executive, meets with his colleagues on the board to consider the rival offers.

The deal would be "by far" the largest ever in the French telecommunications sector, according to Frederic Boulan, an analyst in the London office of Nomura, the financial services group.

From the start, Arnaud Montebourg, the outspoken Socialist Party stalwart who was named economy minister on Wednesday in a shake-up after last weekend's local elections, has made it clear that he opposes the bid from Mr. Drahi.

Mr. Drahi's holding company, Altice, is based in Luxembourg. Besides its being foreign, it is financed with an extensive amount of debt that Mr. Montebourg deems dangerous.

Mr. Montebourg has also cast suspicion on Mr. Drahi's personal finances, and French media reported that the Finance Ministry had begun investigating his tax status.

Mr. Montebourg, seen as being on the left of the Socialist Party spectrum, has said the state wants to reduce the number of mobile operators to three from four, because the current market competition is so cutthroat that it endangers jobs and the companies' ability to finance new investment. His critics say he has seemed less concerned about the possible anticompetitive impact of reducing the number of companies.

As evidence of the government's backing, the state-owned finance business Caisse des Depots et Consignations is ponying up 300 million euros, or $411 million, to back Mr. Bouygues's offer. Two of France's wealthiest families, Pinault and Decaux, have also rallied to his side.

For all the commotion, the deals are actually very similar. Both Bouygues Telecom and Mr. Drahi's cable business, Altice- Numericable, are offering about $20 billion in a combination of cash and shares for SFR. And both would leave Vivendi with a significant minority stake in the merged entity.

But there are crucial differences.

A company created from a combination of Altice-Numericable and SFR would have shares traded on the market. That would enable Vivendi -- which wants to sell SFR as quickly as possible -- to easily unload its residual stake. And a lack of overlapping operations means the deal would be unlikely to encounter trouble with antitrust regulators.

In contrast, a combined Bouygues Telecom-SFR would not be publicly traded, making it harder for Vivendi to dispose of its stake. And there is a risk that antitrust regulators would demand significant asset sales because of the overlap between the two companies' mobile operations.

If Bouygues hopes to win, it will need to reassure Vivendi on its ability to exit from the minority stake, according to people close to the negotiations. …