Bidding War for Vivendi's SFR Intensifies -- 2nd Update

By Ruth Bender 

PARIS--The bidding war for Vivendi SA's telecom firm SFR intensified Thursday, with two suitors submitting improved bids ahead of a Vivendi board meeting that could prove decisive in its plan to become a smaller, media-focused company.

Both cable operator Altice SA and conglomerate Bouygues SA raised the cash portion of their offers to buy control of SFR, in last-ditch efforts to sway Vivendi board members. Both are also offering Vivendi substantial stakes in a new company that would include both SFR and their own French telecommunications business.

The sweetened offers now shift the focus to Vivendi's board, which on Friday will weigh three scenarios: selling to Bouygues, selling to Altice, or pressing ahead with its original plan to spin off SFR.

Much of Vivendi's decision could hinge on its assessment of how financial markets will value each new merged company. In the Bouygues offer, Vivendi would hold 43% of the new company, while it would have 32% in an Altice deal.

"It could be a difficult decision," said a person familiar with the matter. Vivendi's board could also decide it needs more time to review the offers, the person added.

The outcome of the SFR bidding war could have far-reaching fallout on France's hypercompetitive telecommunications market, where operators have been clamoring for consolidation ever since a fourth operator entered the market two years ago, setting off a brutal price war.

Bouygues on Thursday was first to disclose a sweetened bid. The conglomerate said it raised the cash part of its offer for SFR to EUR11.3 billion ($15.7 billion) compared with the EUR10.5 billion it had offered last week, when it officially entered the race buy SFR.

Altice, the owner of cable operator Numericable Group SA, also submitted a revised offer to buy SFR ahead of a Wednesday evening deadline, according to people familiar with the matter. The company, owned by billionaire businessman Patrick Drahi, raised the cash component of its offer from EUR10.9 billion, some of the people said, but the exact terms of Altice's revised bid were unclear.

French newspapers reported that Altice raised the cash portion of its bid to EUR11.75 billion. A spokesman for Altice declined to comment.

Vivendi's board will also consider other factors in making their decision, including antitrust and political risk, said the person familiar with the matter.

A deal with Bouygues would shrink the French telecoms market and alleviate the mobile phone price war. But while some in the French government have expressed support for consolidation, the deal carries a greater risk of a longer and more complex review from France's competition authority.

Two people familiar with the matter said Vivendi's chairman Jean-René Fourtou has been leaning toward Altice's offer because it would allow for faster clearance from regulators. But it was unclear if the sweetened offers had changed anything in his stance, one of the people said.

Until just a few weeks ago, Vivendi had been focusing primarily on its plan to spin off SFR during the summer, which it aims to present for approval to shareholders in June.

But persistent interest in a purchase from Mr. Drahi led Vivendi to now consider other potentially more lucrative sale options.

A sale of SFR would be the latest twist in a nearly two-year-long process at Vivendi to shed its telecommunications businesses--in particular SFR, which has swooned in a brutal French mobile-service price war--to focus on its media and content business.

Both suitors have been lobbying publicly for their offers. Martin Bouygues, CEO and Chairman of Bouygues, and Mr. Drahi have vowed not to eliminate jobs in a merger and that they will continue to invest heavily. Mr. Drahi has gone so far as to offer to write a promise into his public license not to reduce the company's net employment.

Bouygues also struck a side deal with smaller rival Iliad SA--which has been at the origin of the French telecom price war--under which Bouygues would sell much of its mobile-network infrastructure and radio spectrum to Iliad to soothe antitrust concerns over Bouygues's bid. A day after the deal, the head of France's competition body said this transaction would help speed up a review of the larger deal.

Write to Ruth Bender at [e-mail]

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