By Sam Schechner
PARIS--European telecom executives are working the phones.
From France, to Spain, to Germany, they are pushing forward with
a round of deal making, raising pressure on regulators to bless a
consolidation drive across the region's fragmented array of
operators.
Vivendi SA could decide as early as Friday between two competing
bidders for its struggling French telecom unit SFR, according to
people close to the deal. British giant Vodafone Group PLC is
likely to decide this week whether to make a $10 billion bid for
Spanish cable operator Ono SA. Buyers are also kicking tires for
potential purchases or mergers in Italy and Nordic countries,
according to bankers.
The result could be a radical reshaping of Europe's
telecommunications landscape, as companies rush to absorb smaller
operators in individual countries and then move on to bigger
cross-border deals in a race for scale. Across the European Union,
well over 100 fixed and mobile operators are owned by dozens of
companies--and operators argue they are too fragmented to keep up
with heavy investments in new networks.
"Consolidation is going to pick up pace in Europe," Orange SA
Chief Executive Stéphane Richard said on a conference call last
week. "We believe that it is unavoidable."
The growing pipeline of deals is the latest strategy of European
telecom executives, as they try to force regulators across the
continent to allow mergers in the same country. Despite concerns
aired by Brussels last month over Telefónica SA's agreement to
merge its German mobile-phone unit with that of Royal KPN NV, more
firms are coming out of the woodwork with deals of their own.
Momentum appears to be on the operators' side. Buyers have
announced more than $50 billion in offers for European telecom
companies so far this year, according to Dealogic, more than in the
corresponding period of previous years since at least 2000. Last
year, companies announced $129 billion in deals targeting European
telecom firms, the largest amount since 2005, Dealogic said.
Multiple factors are fueling the consolidation drive, bankers
and analysts say. Operators, which have long pushed for
consolidation, are worried that cheap debt underpinned by
historically low interest rates could get more expensive as the
European economy recovers. A rising stock market has also led to
more public offerings, putting more companies in play. At the same
time, executives are worried about being locked out by bigger
competitors, including from overseas.
For more than a year, AT&T Inc. has shown an interest in
acquiring wireless operations in Europe. Hong Kong's acquisitive
Hutchison Whampoa, has itself been on a European spree, agreeing
last summer to buy Telefonica's Irish unit for EUR850 million
($1.18 billion), in a deal still under regulatory review. The
company said earlier this month that it is looking to expand
generally in Europe.
In Italy, for instance, analysts have repeatedly said a merger
between Hutchison's 3 Italia and VimpelCom Ltd.'s Wind
Telecomunicazioni could make the market more competitive. Last week
Jo Lunder, chief executive of Wind owner, said he is open to
deals.
"It is like a big game of Risk, and no one wants to end up with
Kamchatka," said Robin Bienenstock, an analyst at Sanford C.
Bernstein, referring to an undesirable territory in the popular
strategy game. "The permutations are endless and the bankers are
having a great time."
Some of the biggest telecom operators in Europe appear to be
preparing themselves for battle and gaming-out options. Telefónica,
for instance, was reluctantly drawn into making a deeper investment
in Telecom Italia SpA last year, according to people familiar with
the matter. It wants to use its stake to influence talks over
Telecom Italia's operations in Brazil, where the two are rivals,
but may well be forced to take a more direct role in Italy,
depending on future regulatory development, those people said.
Vodafone, for its part, is under pressure to use cash from its
landmark $130 billion sale of its stake in Verizon Wireless to
shore up its flagging businesses, notably across its southern
European markets, where pinched consumer spending in recession-hit
economies have rattled results.
In Spain, Vodafone is considering a bid of EUR7 billion or more
for Spanish cable operator Ono, according to people familiar with
the matter. One potential trigger for a deal: Ono's shareholders
are to hold their annual meeting Thursday and, barring an
attractive offer by Vodafone or some other buyer, are expected to
approve plans for an April listing on the Madrid stock
exchange.
France--seen as a telecom wasteland by investors because of
harsh competition--may end up as a surprise turning point in the
continent's consolidation project. Conglomerate Bouygues SA last
week bid EUR10.5 billion in cash to merge its French telecom unit
with SFR, a deal that would reduce the number of mobile operators
in the country from four to three.
The Bouygues bid had initially been seen as a long-shot against
a competing offer from cable-investment firm Altice SA, because
France's antitrust chief Bruno Lasserre had publicly said last year
that he opposed reducing the number of mobile operators in France.
But after Bouygues agreed over the weekend to sell its entire
mobile network to smaller competitor Iliad SA in the event of a
deal, he appeared to soften his position in a newspaper interview,
saying the Iliad offer could speed up his review. A spokesman for
the antitrust agency said it would maintain "absolute
neutrality."
Vivendi's board is expected to meet Friday, and could decide
then on a bid, the people close to the deal said.
"If one of the cornerstones of Europe decides to go from four to
three, that could force a change in direction across Europe," said
one investment banker not involved in the transaction. "Now it
looks like every deal you've ever thought of is possible."
Simon Zekaria in London, David Román in Madrid, Yvonne Lee in
Hong Kong, Manuela Mesco in Milan and Thomas Gryta in New York
contributed to this article.
Write to Sam Schechner at sam.schechner@wsj.com
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