Orange and Bouygues SA’s share price up, announce preliminary talks over an eventual merger

Orange SA and Bouygues SA made separate statements, revealing that they are considering a merger. The French Economy Minister Mr. Arnaud Montebourg called once again for consolidation of the French mobile-phone operators. The companies have had informal talks concerning potential partnership, including an eventual merger.

An eventual deal between Orange and Bouygues, who are currently the first- and third-largest mobile operators by subscribers in France, would consolidate them in a new and stronger entity. According to one person with knowledge of the process, the Chief Executive Officer of Orange and Bouygues have not had formal talks, but there were meetings between them to discuss different options of partnership, including an eventual merger.

As reported by the Wall Street Journal, Orange made a statement, saying: “Orange believes that a consolidation of the French mobile market would be positive in the long term both for investments and consumers.” The Chief Financial Officer of Bouygues SA Mr. Philippe Marien also commented the talks between the companies on a conference call, which was cited by Bloomberg: “All scenarios are on the table. All market operators are looking at hypotheses, opportunities, work sharing, partnerships and commercial exchanges.”

Despite that negotiations between the companies are still at a preliminary stage, the French government, which currently owns 27% of Orange, has already been informed about the discussions. A spokeswoman of the Economy Minister refused to make any comments on the matter.

The companies did not provide any details about potential partnership. Earlier in 2014, Bouygues lost the bidding war with Altices Numericable over the Vivendis SFR unit. The latter has been acquired by Mr. Drahis Numericable Group SA, which narrowed the number of mobile operators in the country to four.

According to some analysts, competition in the sector would become fiercer due to any deal that reduces the number of French mobile operators. An eventual merger between Orange and Bouygues would form a new company that would hold about half of the wireless users in the country. Moreover, such a deal would definitely attract the attention of antitrust regulators, which would undoubtedly lead to more strict control in the sector.

Orange added 1.14% to trade at 12.41 euros per share by 9:08 GMT, marking a one year change of +51.27%. According to the information published on the Financial Times, the 24 analysts offering 12 month price targets for Orange have a median target of 11.10, with a high estimate of 14.00 and a low estimate of 8.50. The median estimate represents a -9.54% decrease from the last price of 12.27.

Bouygues SA added 3.74% to trade at 32.86 euros per share by 9:08 GMT, marking a one year change of +59.79%. According to the information published on the Financial Times, the 15 analysts offering 12 month price targets for Bouygues SA have a median target of 31.00, with a high estimate of 38.00 and a low estimate of 21.00. The median estimate represents a -5.72% decrease from the last price of 32.88.