CORRECTED-BREAKINGVIEWS-Drahi’s French exit may require local carve-up

By Jennifer Johnson

LONDON, May 20 (Reuters Breakingviews) - Patrick Drahi’s French telco sale may not be straightforward. On Monday, Bloomberg reported that the Moroccan-born billionaire is looking for suitors for a controlling stake in telecoms operator SFR. But the pool of eligible bidders is relatively small given the unit's paltry cash flow and the risk of state intervention. Meanwhile, competition issues mean local rivals can only vie for parts of the business.

SFR is the second-largest mobile operator and home broadband provider in France, per 2023 figures from the French Treasury. On Monday, Bloomberg reported Drahi is looking to sell the business, valued by Altice France in February at 28 billion euros including debt. It has piqued the interest of suitors including Emirates Telecommunications EAND.AD, which already owns a stake in Vodafone VOD.L, as well as private equity groups.

Snapping up the whole business, however, will be tricky for these bidders. Take Emirates Telecommunications, known as E&. Given the group is owned by the Emirati state it may run into difficulty with the French government, which has blocked international buyers from taking control of strategic assets in the past. In 2021, the finance ministry stopped Canada’s Alimentation Couche-Tard ATD.TO from buying grocery chain Carrefour CARR.PA, and in 2023 it prevented U.S. group Flowserve FLS.N from buying nuclear power plant supplier Segault and Velan. Buyout shops are also unlikely to clinch a deal given the target’s paltry cash flow prospects. In 2024, Altice France's EBITDA was nearly negated in full by 2 billion euros of capital expenses and 1.5 billion euros of debt repayments, leaving little for buyout barons to play with.

That leaves domestic rivals to battle it out. France’s other major operators, Orange ORAN.PA, Iliad and Bouygues are the most eligible acquirers, according to a banker familiar with the business. But a Gallic tie-up wouldn’t be straightforward from an antitrust perspective. Mobile and broadband market leader Orange is unlikely to take over its closest peer, and the other two rivals may also struggle to prove that a combination would not erode competition and lead to higher prices.

A breakup is therefore the most likely outcome. Bouygues and Iliad have smaller shares of the broadband and mobile markets than Orange. This could allow them to buy up more customers and still argue the market is competitive. Drahi may have been hoping for a bidding war to get the best possible price for SFR, but with so many obstacles he may have to settle for a messy carve-up.

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CONTEXT NEWS

Altice France is considering the sale of its controlling stake in mobile operator SFR amid an ongoing debt restructuring process, Bloomberg reported on May 19 citing people familiar with the matter.

Potential suitors include fellow French telecom operators Orange and Iliad, as well as Emirates Telecommunications and private equity shops, Bloomberg added.

Patrick Drahi, the billionaire head of Altice, could also choose to buy back some of the SFR stake held by debtholders. This would allow him to cement his control ahead of a potential sale, Bloomberg sources said.