French telecoms sell-off

Bouygues' stock fell 15.8 percent in early trading on the Paris stock exchange on Monday, dragging down rival companies Iliad and Numericable-SFR 13.5 percent and 12.2 percent respectively.

Shares in Orange also dropped, falling 5.2 percent after the French telecommunications market leader said Friday it decided "to end discussions" with Bouygues for a merger.

The deal worth an estimated 10 billion euros ($11.4 billion) would have seen considerable concentration of the market, in which Orange holds 38.8 percent, with Bouygues in third position with 16.3 percent.

Sources said that the valuation of the two companies was one of the main sticking points in the talks and would have resulted in the number of mobile operators in France dropping to three from the current four.

'Monster deal'

Bouygues chairman Martin Bouygues told French daily Le Figaro's online edition that three of France's big players had wanted the merger to succeed but the fourth, whom he did not name, had put a spanner in the works.

"There were four of us around the negotiating table, but only three of us wanted to make it work," he said in remarks published Monday. "Clearly one the players had the ambition to get the most while paying the least, with the option of pulling out."

Asked whether he meant Iliad founder Xavier Niel, Bouygues said: "Everyone is entitled to their own interpretation."

The two companies announced publicly in January they were holding talks - the second time they have considered a tie-up, and the fifth attempt in two years to consolidate the market where operators have been slashing prices to capture customers.

The French state, which still owns 23 percent in Orange, the successor to the national phone operator, played a key role in the outcome of the talks. "The state wanted Orange shares to be valued at a price much higher than at the market" and imposed conditions that were likely to be difficult for the Bouygues group to accept, a person familiar with the talks told Le Figaro.

"It got so complex that it failed. We ended up with a monster of a deal that contained too large uncertainties concerning competition and in the end Bouygues found it too risky," another source told the newspaper.

State meddling

The deal would have created the dominant player in an industry damaged by fierce competition, but collapsed after Bouygues decided not to sell his telecom business to the former state monopoly even though he had floated the idea himself four months earlier.

For the deal to go through, Bouygues would have had to agree to sell some assets to Iliad and SFR - a demand raised by French Economy Minister Emmanuel Macron to ease competition concerns. He also wanted the government to keep three seats on the Orange board and a blocking minority at shareholder meetings, an idea that Bouygues understood and accepted from the start.

But Bouygues was not happy with Macron's request to cap his potential stake in Orange for seven years and give up for 10 years the double-voting rights he was entitled to as a long-term investor in Orange. According to Le Figaro, Bouygues felt humiliated by Macron's demand.

The talks soured in the final week, according to several people present, with Bouygues increasingly mistrustful of the two other players: Xavier Niel, the founder of Iliad, and the owner of SFR, Patrick Drahi. Bouygues became increasingly wary of the risks to his interests from the break-up of his telecom assets and the manner of their distribution among his rivals.

uhe/cjc (AFP, Reuters, dpa)