Orange/Bouygues merger off as talks fail

UPDATED

The potential merger between French telcos Orange and Bouygues is off after months of negotiations drew to a close with no agreement in place.

Discussions over the merger have been ongoing since January which would, ostensibly, have created the country’s biggest telco owning the majority of the market. Leaks and media speculation forced the telco in to publicly stating board-level talks were underway, and last week Orange said talks would conclude over the weekend.

Indeed, the talks have concluded, but not with the confirmation of a deal expected by many. Instead, a statement released by Orange simply said: “After in-depth discussions, the Board of Directors of Orange has concluded that an agreement regarding a possible consolidation with Bouygues Telecom has not been reached. The decision has therefore been taken to end the discussions with Bouygues that have been ongoing since 5 January 2016.”

There were concerns over the consequences such a large consolidation effort would have on the French market. With two large players forming to hold an outright majority of French consumers, one of the key sticking points of the discussions was over the distribution of Bouygues assets to the other two players, SFR and Free, to maintain an even playing field.

Bouygues’ statement upon the conclusion of discussions offered some insight into its concerns. It said it “attributed great importance” to the level of its equity stake in Orange that would enable it to become a significant shareholder capable of supporting Orange’s growth over the long term, as well as its own valuation. Therefore, its Board of Directors drew a swift close to the talks.

“After three months of discussions with Orange, it was not possible to find agreement on all of these points,” it said in a statement. “In a market where the possibility of consolidation is now ruled out for the long term, Bouygues Telecom will continue its standalone strategy, which has already resulted in a return to growth in sales and EBITDA in 2015.”

It would seem concerns over Bouygues’ influence and valuation as a result of a joint venture with Orange could well have been the obstacle which neither party could overcome. Stating consolidation is now ruled out for the long term is a fairly clear indication that this saga won’t be revisited anytime soon.

UPDATE – 12:30 04/04/16 – Stocks for each company fell significantly on the Paris Stock Exchange on Monday morning, as investors seemingly sought to make their dismay apparent. A prospective deal had been widely regarded as a chance to shake up a French telecoms market which has stagnated significantly in recent years. Shares in Orange dropped 4.5% from Friday’s closing price of €15.4; while Bouygues suffered a 14.7% reduction on its €35.1 share price.