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Paris telecom stocks dive as Orange hangs up on buying rival
[PARIS] Stocks in French telecoms companies fell sharply on Monday after market leader Orange said talks to purchase the rival network owned by industrial group Bouygues had failed.
The company said that "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" January, Orange said in a statement Friday.
Shares in Orange closed 6.2 per cent lower at 14.45 euros on Monday, Bouygues fell 13.5 per cent to 30.42, Iliad, parent company of the Free operator, dropped 15.1 per cent to 190 euros and Numericable-SFR closed 18 per cent down at 29.90.
"There was much expectation surrounding the talks by the four operators," said HPC trader Xavier de Villepion. "It was in their interest to reach a conclusion."
Deutsche Bank's recommendation for Orange shares went from "neutral" from "buy", while Berenberg now calls Bouygues a "sell" from its previous "neutral" call.
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 - a number that many analysts believe is all the French market can bear, instead of the current four.
Another was the risks that the deal would be blocked by competition authorities over concerns it could lead to higher prices for consumers.
Bouygues chairman Martin Bouygues told 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," he said.
Asked whether he meant Free chairman Xavier Niel, Mr 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.
"...Orange will pursue the deployment of its strategic plan, launched in 2015, that is focused on investment in very high-speed broadband networks and providing an unmatched customer experience," said the company, adding its financial targets remain unchanged.
The deal would have seen considerable concentration of the market as Orange held 38.8 per cent of the market at the end of last year, with Bouygues Telecom in third position with 16.3 per cent.
A considerable portion of Bouygues Telecom's network was expected to be immediately sold off by Orange to the other two operators in the market in order to alleviate competition concerns.
The French state, which still owns 23 per cent in Orange, the successor to the national phone operator, played a key role in the outcome of the talks, according to one source.
"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, said the person familiar with the talks.
"It got so complex that it failed," said another source. "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."
Martin Bouygues told the Figaro that he was "not worried" about his company's future. "The company is perfectly viable in a four-player market," he said.