France's antitrust watchdog has privately ruled that Vivendi won't be allowed to merge its SFR Internet and wireless-services unit with upstart Iliad SA, according to a report appearing on the website of French radio station BFM.
SFR and Iliad's Free are No. 2 and No. 4, respectively, in the French wireless telecoms market. The former has about 21 million customers, while the latter had 4.4 million customers as of September.
The companies are said to have separately approached the French Competition Authority with an informal inquiry about a theoretical merger. Both were told it would be blocked as the combined company would have too much market share.
Free appears to be a victim of its success. Its arrival about a year ago proved the case for competition in the French phone market. Founded by entrepreneur Xavier Niel, Iliad debuted with an aggressive pricing plan. Offering unlimited calls, texts and data for €20 ($26.22) per month, the newcomer forced the other operators to slash prices in a market that until then had been the most expensive in Europe.
It also bit deeply into the profits and customer bases of SFR, France Télécom SA's Orange and Bouygues Télécom, which were charging more than twice that for similar plans before Free's launch.
If the reports of the abortive merger are true, and no one at SFR, Iliad or the French antitrust regulator is commenting, then SFR joins a growing list of European telecoms that have had their deal ambitions frustrated by antitrust regulators.
Last year, Vodafone Group plc abandoned plans to buy Wind Hellas Telecommunications SA after it became clear that Greece wouldn't support a deal that reduced its mobile phone market to a duopoly. Two years earlier Orange Switzerland, then part of France Télécom, offered to buy Swiss rival Sunrise Communications AG, only to have its way barred by the Swiss competition watchdog.
In Austria, Hong Kong's Hutchison Whampoa Ltd. was granted European Commission approval for its €1.3 billion acquisition of Orange Telekommunikation GmbH in December last year, but only after it agreed to sell spectrum and make other concessions that would allow a new entrant in the market.
In other European markets providers are considering circumventing the antitrust rules by striking nonequity mergers, through network-sharing agreements. But that is of little use to Vivendi, which has promised disposals, not least because it needs cash to reduce its about $14 billion of debt.
News of the talks with Iliad adds to the steady trickle of rumors suggesting that SFR is no longer a part of Vivendi's long-term vision. The conglomerate had been widely expected to dispose of telecommunications assets in Brazil and North Africa, and, despite an insistence that there were no taboos in its strategic review, the jettisoning of SFR wasn't initially in the cards.
Since then Vivendi has reportedly held talks with Vodafone, the former co-owner of SFR, but ended them in October because of differences over valuation. It has also been approached by Numericable SAS, a French cable operator controlled jointly by Carlyle Group and Patrick Drahi through his Altice fund. Numericable and Vivendi/SFR remain in talks, according to French papers, though the prospect of a deal remains remote as Vincent Bolloré, the French industrialist billionaire who bought a 5% stake in Vivendi last year and has a seat on its board, opposes it.
All of that means that BNP Paribas SA and Goldman, Sachs & Co., which are reported to be managing SFR's sale, still have a considerable challenge on their hands. Vivendi may have the will to offload its biggest unit; it is up to the banks to find a way.
Steven C. Todrys joined Evercore's investment banking business as a senior adviser, focusing on transactional tax and structuring solutions. For other updates launch today's Movers & shakers slideshow.
Competition Commissioner Margrethe Vestager said that mergers in the sector would continue to get close scrutiny in Brussels, particularly those that reduce the number of players in a market from four to three. More video