France's Orange, Bouygues

France's telecommunications giant Orange is in talks to buy its smaller rival Bouygues Telecom, both companies said Tuesday, a move that would consolidate one of Europe's most competitive telecoms marketplaces.

Orange, which is 20-percent owned by the French state, said it had "renewed preliminary discussions" with the Bouygues group but stressed they were not bound to any timeframe nor committed to "any particular predefined outcome".

Amid recent press reports of talks between the two groups, analysts had indicated that Orange may be facing a crunch decision over whether to shore up its position at home by gobbling up a competitor, or expand its presence abroad.

"The group is exploring the opportunities available within the French telecoms market, while keeping in mind that its investments and its solid position afford it a total independence in its approach," Orange said in a statement.

It will be "particularly vigilant with regards to the value created through any resulting project", it added.

Orange chief Stephane Richard told AFP on Monday that his company had been "thinking for a little while that there's a certain logic to a consolidation in France".

The economy ministry declined to comment.

However it highlighted that Economy Minister Emmanuel Macron said last month that he had no "principled position" on the number of operators in the market as long as investments in fixed line and mobile services are safeguarded.

That stance had evolved from June when he said consolidation was undesirable for the sector.

- 'Everyone stands to gain' -
News of the talks appeared to find favour on the Paris stock exchange, with telecom shares up on prospects of a condensing of the French market from four to three operators which could help reduce pressure on prices.

Shares in Bouygues were up slightly by 0.15 percent at 37.21 euros at 1030 GMT but had reached as high as 38.6 euros in earlier trading, while Orange was also slightly higher as well as other telecoms operators.

"Everyone stands to gain from the fact there is one less player and therefore one less competitor," HPC trader Xavier de Villepion said.

The industrial and construction company headed by Martin Bouygues said in a separate statement that the two telecoms had signed "a confidentiality agreement".

"For the moment, no decisions have been taken and there is no guarantee that there will be an outcome to these preliminary discussions," Bouygues added.

It said it would "attach decisive importance" in all its discussions to "the interests of Bouygues Telecom employees and to investment momentum within the sector, which must remain strong in the interests of the consumer".

Any merger between the two French telecoms operators would require the green light from competition authorities in both France and Brussels.

It would represent more than 60 percent of the mobile market, facing competition from smaller operators SFR and Free.

In June, Martin Bouygues rejected a buyout offer by rival group Altice, which owns Numericable-SFR, and was equally unimpressed by a deal offered by Xavier Niel, the owner of the upstart French mobile and Internet operator Free Telecom.

Press reports have suggested Orange would absorb Bouygues, which in turn would take a 10-percent share in Orange, an option that could offer greater protection for Bouygues employees while ensuring the group maintains a telecoms presence.

Telecommuncations consultant Stephane Dubreuil has said he believed the French government would support the deal but that it could prove hard winning over the European Commission, with a high level of compensation demanded in return.

Analysts said Orange would probably need to sell assets worth around five billion euros ($5.4 billion) to meet regulatory concerns over any tie-up.

Competition chiefs in Brussels have taken a tougher line in recent months, favouring moves towards international consolidation over mergers between national operators.

"It's never happened so far in Europe, to see the number one on a national market purchase the number three," Dubreuil said.
Source: AFP