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Bouygues faces crossroads choice on telecoms business

Martin Bouygues, CEO of Bouygues, speaks at the inauguration ceremony for the Henri Konan Bedie toll bridge in Abidjan December 16, 2014. REUTERS/Thierry Gouegnon

By Leila Abboud

PARIS (Reuters) - Martin Bouygues, scion of one of France's top industrialist families, must decide on Tuesday whether to part with the telecoms business that is his main contribution to the conglomerate built by his father.

The Bouygues (BOUY.PA) board is due to meet later on Tuesday to discuss what sources said was a 10-billion-euro ($11.3 billion) bid by European telecom group Altice (ATCE.AS). In reality, the decision lies with the 63-year-old Bouygues alone.

"No-one really knows what is on his mind, whether he'll sell now," said one person familiar with the situation.

"(But) if he sells, he'll have commanded an amazing price for the business he founded and carries his name," the source said of a business ranked as France's third-largest mobile player.

Martin Bouygues has already rebuffed at least two offers in the past year for the unit he founded in 1994, insisting as recently as last month that Bouygues Telecom could prosper on its own. He once even rebuffed a question about selling the business by firing back at a journalist: "And you, would you sell your wife?"

But the offer by Altice's Patrick Drahi outstrips all past approaches. Drahi's own empire-building took off in 2014 when he beat out Bouygues to acquire Vivendi's (VIV.PA) SFR, the second-biggest mobile operator.

The 10 billion-euro price tag would value the unit as much as the entire Bouygues group before the offer was made public. It also eclipses earlier offers from Orange (ORAN.PA) and low-cost operator Iliad (ILD.PA) - each around 5.5 billion euros - as well as a previous 8 billion-euro approach by Drahi.

The business, which has been posting losses since Iliad broke into the French mobile market three years ago, had a 2014 total asset value of 5.8 billion euros.

The deal value would be the equivalent of 14.4 times the division's 2014 EBITDA earnings of 694 million euros, well above a sector average multiple of 7-11, according to investment house Raymond James.

If he sells, Bouygues could use the cash to cut debt, raise his family's stake in the group or finance other acquisitions, said Natixis analyst Gregoire Thibault.


Price is not the only factor in Bouygues' decision.

Drahi, known for aggressive cost-cutting, could extract as much as 1 billion euros a year in synergies to raise profit margins, analysts estimate, but only at the expense of painful job cuts - which Bouygues has indicated he wants to avoid.

President Francois Hollande's Socialist government has moreover expressed concern over the deal.

Prime Minister Manuel Valls on Tuesday set five conditions for any accord, including employment guarantees and assurances on investment in high-speed broadband and in the upcoming auction of radio spectrum for 4G mobile broadband networks, from which the state wants to raise 2.5 billion euros.

Drahi is set to discuss the proposed deal with French Economy Minister Emmanuel Macron later on Tuesday.

Set against such obstacles to a deal is the increasingly cut-throat nature of the French telecoms sector and how Bouygues Telecom, after a strong start, has struggled to keep up since Iliad's 2012 arrival as a fourth national player.

A turnaround plan including staff cuts and a re-positioning of the business has failed to generate positive cash-flow for Bouygues, while its late entry into the fixed-line market means it can only sell broadband by renting capacity from Numericable.

By 1243 GMT Bouygues shares were up 0.16 percent, having jumped 13 percent on Monday despite uncertainties surrounding the deal, while Altice shares were up 1.58 percent and Numericable-SFR (NUME.PA) shares were down 1.04 percent.

($1 = 0.8872 euros)

(Additional reporting by Dominique Vidalon and Gilles Guillaume; Editing by Keith Weir and Pravin Char)