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Deal would require significant remedies in order to win over competition watchdogs.
Following a spate of rumours, Orange and Bouygues Group on Tuesday confirmed they are in early talks about a merger that could shake up France’s telco market, provided they can win over competition regulators, of course.
The French incumbent has been linked to its smaller rival in numerous reports, most recently on Sunday, when Le Journal du Dimanche reported that the two companies were working on a deal valuing Bouygues Telecom at €10 billion. Bouygues would receive a 15% stake in Orange worth €8 billion, with the remainder paid in cash.
Orange declined to comment on Monday, reiterating its position that press rumours have been artificially driving the market, and that of France’s big four, it has the least need for consolidation. In response to separate rumours in early December, Bouygues Telecom insisted it remains committed to the sector.
Both companies have changed their tune now though.
"Orange confirms that it has renewed preliminary discussions with the Bouygues Group with a view to a consolidation with Bouygues Telecom. These discussions are not limited by any particular calendar and hold no commitment to any particular predefined outcome," said Orange, in a statement on Tuesday.
"The group is exploring the opportunities available within the French telecoms market, while keeping in mind that its investments and its solid position afford it a total independence in its approach," the telco said.
In a separate statement, Bouygues said it is interested in opportunities that would "bolster its long-term presence in the telecoms sector." Consequently, Bouygues confirmed that "preliminary discussions have started with Orange to look at the possible options."
However, any deal would certainly require significant remedies in order to win approval from competition regulators.
According to the latest figures provided by the mobile operators themselves, Orange serves almost 40% of France’s mobile users, excluding customers using MVNO services. Orange and Bouygues Telecom together would account for 59% of mobile network operator customers.
"If the [merger] discussions are successful we expect Orange to be forced to sell significant portions of Bouygues Telecom’s network, to make spectrum concessions or even to let go of part of Bouygues’ customers" in order to get past antitrust watchdogs, said Haitong Research, in a research note.
The China-based brokerage said that rivals Numericable-SFR and Free Mobile parent Iliad could be the biggest beneficiaries from this process, particularly Iliad, since it would strengthen Free Mobile’s network and spectrum portfolio.
However, that still might not be good enough for the European Commission.
Telenor and TeliaSonera in September scrapped plans to combine their Danish units into 50:50 joint venture after their proposed remedies failed to win over EU competition commissioner Margrethe Vestager. This, despite Denmark having a much smaller population than France and some of the cheapest telco tariffs in Europe.
While Vestager maintains that every case will be judged on its own merits, Orange and Bouygues will surely have Denmark in mind as merger talks get underway.
