Orange S.A. (FNCTF) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen. Welcome to this Bouygues Group conference call. Please note that this conference call will be recorded. [Operator Instructions] I yield the floor to Olivier Roussat, CEO of Bouygues Group. You have the floor.

Good morning, ladies and gents. Thank you for being on this call on such short notice. This morning to answer the many questions you have, I'm with Pascal Grange, Deputy CEO of Bouygues Group; Stéphane Stoll, the new CFO, since the 1st of August; Benoit Torloting, CEO of Bouygues Telecom; and Christian Lecoq, CFO of Bouygues Telecom. I'll make a short introduction before moving to the Q&A. You saw the communiqué -- the press release. So there's a joint bid with Free-Iliad and Orange. This is a nonbinding offer for a large part of the assets of Altice Group for a total of EUR 17 billion. This joint offer is beneficial -- beneficial for the market by preserving a competitive ecosystem in the interest of consumers. It also benefits the seller. It offers an attractive valuation that includes a share of the synergies expected from this transaction. It also benefits the buyers because in our industry, we have fixed cost, and we'll have efficiency gains from this. This is a nonbinding offer. It's only the first step of a long journey. There are still many steps to go, including the seller's agreement, the due diligence, the submission and acceptance of a binding offer and then lastly, obtaining the clearance of administrative authorities. The planned asset allocation is as follows: the B2B business will be taken over mainly by Bouygues Telecom and by Free-Iliad Group. The B2C business will be shared between Bouygues Telecom, Free Group Iliad and Orange. The other assets and resources, in particular, infrastructure and frequencies, will be shared between the 3 operators with the exception of SFR's mobile network in less densely populated areas, the Crozon network, which will be taken over by Bytel. On the basis of this indicative asset allocation, the split of price and value would be around 43% for Bytel, 30% for Free-Iliad Group and 20% for Orange. If successful, this transaction will be -- will make a lot of sense. It will create value in the medium term, as I said earlier. And there's a number of stages, including the following steps. If the offer is accepted, we'll move to negotiation, then the due diligence to be carried out, enabling a confirmatory offer to be submitted. After these stages, which will take several months, the employee representative bodies will be consulted and an application will be submitted to the relevant administrative authorities, especially the antitrust authorities and the RCEP. In France, we believe that the approval process will take over 18 months from the day of acceptance of the binding offer. This transaction will, therefore, not be completed before the second half of 2027. After the implementation of the agreement -- this will be followed by the implementation of the agreement. It would probably take a few years to be able to migrate customers and then benefit from the full potential of this transaction. Throughout this process, we'll pay close attention to the human resources issues at stake. As you can see, we're embarking on a promising process that will deliver value for all stakeholders, but this is a long process, a long ways, and there's no guarantee of success. To conclude, I'd like to say again that we are convinced that this joint offer will ensure the long-term future of favorable conditions on the competitive market for the benefit of consumers. It will address the goals for the safety, independence and resilience of France's telecoms network and enable the necessary investments to be made with better return on investment. Pascal Grange, Stéphane Stoll and Benoit Torloting and Christian Lecoq are ready to answer all your questions.

[Operator Instructions] We have first question from Mathieu Rob from Barclays.

Thank you for the presentation. I had a few questions first. On the scope of the takeover, you said in the press release that some assets are excluded from this offer. I understand some are not consolidated that XP Fiber. But I imagine that some overseas assets are consolidated. So could you give a rough idea of the EBITDA or sales of the second quarter of Altice France? The scope on which you're formulating an offer, is that 90%, 95% of the total? Then second question is on infrastructure. You have a JV, joint venture, with SFR, I think when it comes to the horizontal dimension of densely populated areas, will you acquire the whole of the joint venture? And thirdly, I wanted to know if in your bid, there will be a price adjustment mechanism depending on the operational performance of Altice over the coming years.

Right. Before sharing the floor, the scope of the asset purchase excludes [ DOM-TOMs ], XP Fiber, UltraEdge, STS. So these are client businesses, businesses only that are acquired. Your question was about fiber. This is the horizontal business, and Christian will answer your question.

About these 3 questions. First, on overseas territories, we don't have figures at the end of June 2025. We don't have data from Altice. So 2024 data are public. Then for fiber, [Audio Gap] are co-owners of the high-speed network for a densely populated area, and this will be fully taken over. And for the adjustment mechanism, we'll have to find an agreement with the seller before seeing what we can do in that regard.

We have a question by Eric Ravary from CIC.

Can you hear me? Hello?

Very well. Go ahead.

I have a few questions. First, on regulation authorities. The EU Commission, antitrust authorities will have a jurisdiction over this. Then share of assets and clients, understood. But what about the employees of SFR in France? What's the split that you envisage? And on the transitory mechanism structure, how will the cost be shared between the 3 operators? And for the client base split, the main purchaser for the B2B, will you -- could you provide more information on this?

First, we won't give more information on the base split than what we already provided. For regulatory authorities, each company purchases a client stock. So the modification of competition after this purchase generates a new situation for an authority regulation -- regulatory authority. There are 3 rules in total. There's one application by Orange, which will be examined by the authority, another submitted by Iliad Free and the third by Bouygues. Then the competent authority for us is ADLC and for our 2 partners, Brussels or the French authority may step in, but this depends on sales, volume and ratios. Third question now on HR issues. Just to give you a ballpark idea. Generally speaking, between now and close, there will be 24 months, a little less than 2 years, waiting for reply by authorities, so maybe 2027, then a transition period for client migration. This will take yet again a few years. So generally speaking, we have a situation where a large part of SFR's employees will be necessary for the company for at least 2 years and then a share of them for the coming time. So this is an important issue, and we will pay close attention to this, but we're in an early stage for now.

Additionally, for the shared entity, Stéphane, do you want to take that question?

Yes. On this transition entity and this shared entity and the shared costs, all of this is very early stages. We're at the very first steps, a very long process. And as Mr. Roussat said, it might not be successful in the end. But what we are currently thinking about at this stage is that there are a number of assets and resources that could be placed in a shared entity that would exist for the transition period. And the costs for running these assets would be under this shared entity shared between the 3 operators.

Right. I think we've covered most of the questions that you answered -- that you asked, sorry.

We have now a question from Stéphane Beyazian from ODDO BHF.

Three additional questions on my side. You didn't make any announcements on a pre-commitment, for example, on pricing. We know that for some operations, there were some commitments that were made on the pricing levels for such transactions. So is there anything you want to add on that? Secondly, I know that you can't right now quantify the effect of the synergies, but could you maybe tell us whether you believe these synergies are easy to build or not? And tell us also about the reverse synergies. And thirdly, can you make any comments on the political aspect of this transaction? You've shared with us some good news on French politics. Could you tell us maybe a bit more, yes, on the political nature and implications of this deal?

Stéphane, we made the announcement yesterday evening, and that's because we found an agreement the day before yesterday. So our agreement is not really based on the French Prime Minister's speech. It just so happened that -- it happened on the same day, but it's really not something that we had planned. So we made the announcement yesterday, and it just so happens that the Prime Minister was also giving his general political speech yesterday. Now when it comes to the commitment, yes, there's the CMA and what happened in England recently. So this is something that we'll be discussing with the antitrust authorities. But once again, it's very early days. The antitrust authorities will definitely be much more involved when there will be an actual binding offer. But these are things that we are going to be discussing with antitrust authorities, both in France and Brussels. Now even though this is still early days, and we are not sure of any success. We do have a feeling that we can complete this transaction. And on the synergies, Stéphane will take that question.

Regarding the synergies, we have to be very conservative once again because it's very early in the process. But what I can tell you is that we do expect synergies from that project, synergies in the networks, in the structures as well. It's a transaction which will lead to implementation costs. So what we can say, generally speaking, in terms of process and by being conservative, like Olivier said, it's an operation, a transaction which will take a long time. There will be integration costs to factor in. In the first few years, after the closing, there will be 2 to 3 years to implement this integration process. And the synergies, we will be able to see them at the end of that process. The backdrop is not exactly the same as 10 years ago. So the synergies that were discussed 10 years ago are not the same as today. Iliad has reinforced its network, and a large part of the synergies were made with the Crozon network.

If I could just touch upon this quickly? This is [ Jerome ].

Over to you, [ Jerome ].

Okay. So just to go back to what you were saying.

Is it going to be 2/3 OpEx, 1/3 CapEx? Will there be more OpEx, CapEx for the synergies?

Stéphane, this is Christian. The EBITDA is not something that is standardized from an accounting point of view. There are different methodologies, different approaches between ourselves and SFR. So we are looking more at the operating cash flow and not really on OpEx, CapEx. And once again, this is really very early days. We are working on data that has been made public data from 2024 as well. So -- we can't give you more information until we've completed our due diligence and come up with a binding offer. Right now, we have a set of assumptions, which is way too broad to give you more details.

Now we have a question from Joshua Mills from BNP Paribas.

Maybe if I could just go back to one that was asked earlier as I wasn't quite clear on the translation. When do you expect to know whether this will be looked at by the French or the European Commission regulators? And what are the important factors in determining which of the 2 entities it goes to? That's the first question. Secondly, can you give a bit more detail about the customer split that you've announced yesterday? Is this being done by brand, so the SFR versus the RED brand? Or is that all still to be determined? And then thirdly, there is discussion in the press report about traffic migration to new networks and you've discussed synergies there as well. Can you give any early indication of how you're thinking about the mobile network development, potential shutdowns or where you might be able to save costs on that as well?

So first of all, for the split of client basis for B2C and B2B, the detail that we have given you is -- well, essentially what we've given you. We're not going to be sharing any more information. Secondly, when will the antitrust authorities be involved? Well, of course, they will be notified, but the authorities will officially look into this transaction when there is a binding offer. And they need to be notified and to be notified, we need to come up with a binding offer, which will outline very clearly what we intend to do. And then the authorities will analyze the transaction. Thirdly, on the migration, and this is probably for Benoit and Christian. Over to you, gentlemen.

Yes. Now for the client migration, once again, we are very early in the process, as Olivier mentioned. The closing of the operation will take us to 2027, and that's when we'll start migration of the clients. We'll make sure for the clients that there will be no interruption of the service. We'll make sure that we can guarantee a continuity of service for the clients of SFR. That is definitely at the heart of our reflections. At Bouygues Telecom, as you know, a few years ago, we acquired [ EIT ] and La Poste Mobile. And so we already have a success story of migration of clients. So we've been able to do this in a very transparent way for our clients, and we'll be building on that positive experience.

Now we have a question from Rohit Modi from Citi.

Most of them have been answered. I have 2. Firstly, if you can give any color on when you talk about the infrastructure sharing -- infrastructure split, does that mean the leased part of the infrastructure split as well? And if you can give a bit of color because you're saying majority of Crozon's comes into that place, which is kind of -- a major part of it has been leased by SFR. So how that structure will be? Second, when you talk about the 18 months of approval period, that takes into account both EU and French authorities level or you're just talking about at the French authorities level? And lastly, can you give any color how are you going to fund this deal, if approved?

So for the 18 months, Stéphane is preparing an answer. But the 18 months, that's the necessary time. It could be 14, 16, 18. But when you're in a Phase 2 transaction, it's -- well, the necessary amount of time for the antitrust authorities to give us a green light. So it's not a set period of time. It's what we assume will be the necessary amount of time for a Phase 2 project. Now for infrastructure and for financing, Stéphane is going to start and then Pascal.

So for the infra split, what we can say at this very early stage is that what we've imagined and what you've seen in the press release is that Bouygues Telecom will be taking over the Crozon network, which is essentially the network that is held and operated by SFR on the low-density area and which has been shared already with Bouygues Telecom for the last few years. And for the other infrastructures, they will be under this shared entity that we would be operating during the transition phase. And this transition phase will then lead us to thinking about the next step for the infrastructure where they are going to be dismantled or shared or split between the operators.

The solution is quite easy. You know that the financial infrastructure of Bouygues is very strong. We have a rating that was confirmed as stable a few weeks ago. So we contemplate financing. There will be debt financing fully and then mostly from Bouygues Telecom, there will be 2 steps. First, bank financing and then a bridge credit with a bond-based financing.

Now we have a question from Akhil Dattani from JPMorgan.

I've got a few questions, mind as well, please. Firstly, you talked around the different parameters that determine whether this goes to France or the European Commission. But could you give us your base case on what you're assuming? So which authority at this stage are you assuming will have jurisdiction over this transaction? The second one is on potential remedies. Could you talk us through what your hardlines are at this stage, around what sort of remedies you would be willing to discuss with the authorities and which are hardlines and you're not willing to consider? And is there any sort of [ break fee ] on this transaction if the deal were not to go through? And then the final thing would be -- you talked around synergies and things that might be relevant. But one of the variables we'll all be aware of is that all the major French telcos have sold their towers to different infrastructure operators in France. Is there any sort of opportunity to deliver synergy on the tower side? Or should we assume given those transactions, that's unlikely?

First question on competent authorities. We do have 2 overlapping authorities depending on the sales volume, including France and outside of France. For European groups, there are different jurisdictions. So very clearly, part of the transaction will be examined by Brussels and part of it will be examined by France. 2 entities -- 2 authorities, in Brussels or France, have homogeneous similar processes. So this would not yield different remedies or situations. Then limits -- limitations, hardlines, it's still early days. Yes, we don't know now. It will depend on our discussions with authorities. And if the deal is turned down, refused, well, we'll go back to the previous situation. Well, there will be 4 operators. In the period of examination pre-closing, the market remains a 4-player market with the same level of competition. On to synergies and the costs, talking about power, on to Christian.

Indeed, most of synergies linked to the network and towers. Most towers were sold, but operators have many costs. We invest and maintain active equipment around towers. That's the price of electricity. We must invest each year to renew the hardware, the equipment. Then there's the fixed grid. We have active equipment in this network. So synergies will come from this field after the transaction.

And now we have a question from Carlos Caburrasi from Kepler Cheuvreux.

Most of them have already been answered. So just one. Considering how aggressive SFR has been on pricing, how does the outlook improve for you and the sector if they get out of the picture? And would you expect any restrictions from the regulatory authorities in terms of pricing or their focus will be somewhere else?

Now the antitrust authorities and our discussions with them hasn't started, and it will start from an official perspective, when there will be a binding offer accepted by the seller. This is when you have the pre-notification and the notifications. That's when discussions with antitrust authorities will start, and we'll see different remedies at that juncture. Secondly, on the level of commitment, there are a number of things done that might be done again. But right now, it's way too early to think about the remedies. The competitive level will remain interesting for consuming -- consumers, sorry, operators want to use their fixed equipment and infrastructure as much as possible. So with a 3-player market, there's still enough competition for end consumers.

And now we have a question from Andrew Lee from Goldman Sachs.

I just had one question. I understand you're not going to -- or you can't talk about potential remedies, et cetera, but we've all sat through attempts and disappointment in terms of market consolidation in Europe over the last decade or so. I understand your official interactions with the authorities haven't yet started. But what has given you the confidence both at the French jurisdiction level and the EU jurisdiction level that this time it might be different and that you can get consolidation over the line without offsetting remedies that undermine the benefits of consolidation? Any kind of insight you can give us in how you feel that the philosophies may have changed at those jurisdiction levels would be helpful.

Now first of all, if we are embarking on this transaction, is that we believe we can complete it. If we believed it was impossible to go from a 4-player to a 3-player market, we would not have gone ahead with this nonbinding offer. So we think that we can consolidate the market. First of all, because the consequences of the Draghi Report, the European report, which I think compels us to improve the infrastructure and telecommunication infrastructure. So yes, there are a number of things we need to look in a different light. And then when you look at what's happened, okay, England might not feel like it's European, but they've gone from a 4-player to a 3-player market, likewise for Romania, for the Netherlands. So -- it is -- it seems possible to do that in Europe. There can be efficiency gains, which are profitable for consumers. So that's the feeling that we have that it is possible to go from 4 to 3. Of course, we'll have to discuss it with antitrust authorities, but we are optimistic. If we weren't optimistic, we would not have embarked on this journey. This is a very first step, but we have a definite feeling that we can close this deal.

Now we have a question from David Wright from Bank of America.

I wondered, based on your understanding of the EV and the financials, what is your perceived valuation multiple of the headline offer, please? I think when companies often publish offers, they also refer to the relative valuation. What is your understanding of the relative valuation?

Regarding the relative valuation in the press release, we said 43% of the EUR 17 billion and 43% of the value. That value was calculated with a multi-criteria method based on the EBITDA and on EBITDA minus CapEx, which I called earlier, the operating cash flow, which is, for us, the most important indicator.

And so what is your perceived operating cash flow multiple, just so that we understand your approach?

Well, the operating cash flow of SFR for 2024 has been made public. SFR is altogether more than EUR 1 billion of operating cash flow. And if we remove the few elements that are in the scope, we're still around EUR 1 billion. And that's the figure that we currently have.

Thank you.

And just to add to this, we are very, very early in the process. We haven't done any due diligence. We've based our offer on figures from 2024. So it's a bit early to really give you more color on this.

Now we have a question from [ Jerome Bour ] from MUFG.

Maybe just a quick clarification, if I may. You're saying that every operator is going to have its own application to the antitrust authority. What happens -- and of course, the level of decision may be different between an operator to another. So what happens if one of the offers is being struggling compared to the 2 others being accepted? It's a bit theoretical, but I'd like to understand how you've organized kind of -- or you think you're going to organize this kind of potential scenario.

Well, here again, we are very early in the process. This is once again a nonbinding offer. And in this offer -- it's a joint offer, but we are not here to support one of the operators if they were to pull out or if they were to have any difficulties. We look at this -- at another moment. But we still believe that we can complete this transaction. We are fairly confident.

Now we have a question from [ Ondrej Cabejšek ] from UBS.

Sorry to ask about the regulatory side again. But just to clarify your earlier answer where you said you expect your offer would be subject to French local regulatory approval and then perhaps the Iliad and Orange offers to Brussels. Could you just clarify that statement effectively? Is that your understanding of what's likely to happen?

No, this is not what I said, sorry. What I did say is that there are 2 competent authorities, the French authorities, ADLC, we are under their authority and then Brussels. And I said that the way notifications are made for our 2 partners depends on their sales in France and in Europe. So it's highly likely that one will notify Brussels. And for the other, it's not as likely. I can't talk on their behalf, but what is certain is that both authorities will be notified. And we'll see if it's 2 for Brussels and 1 for France or 2 for France and 1 for Brussels. But I didn't say that our 2 other partners will necessarily notify Brussels.

We have a question by Jean-Yves Guibert from BlueBay Asset Management LLP.

In your press release, there's a joint offer. And yet, as you said, each operator will bring its own offer to the competent authority, European or French. So will each offer be determined on the scope envisaged by each operator, or will each application to authorities be the same standardized? That is the joint offer.

No. The joint offer means that you have an agreement between the 3 operators that makes it possible to purchase assets in France as we excluded overseas territories, we excluded infrastructure and other features, UltraEdge, ATS and Intelcia. Each operator will take over a base and a split of infrastructure. This has been decided. And the acquiring of the base will change the competition of each operator on the French market. So each operator will put in an application to the competent authority for examination -- examination of the consequence of this transaction on the competition situation. So there will be 3 applications -- 3 dossiers. As I said earlier, is that the antitrust authorities in Europe work on the same methodology. I do understand. But there are 3 offers -- distinct offers. So it could be that the conclusions are different for each offer, right? If this would be the case, and this is not congruent with the way we dealt with assets because we made it sure that this application is likely to be accepted. And if it doesn't go through, it will be turned down and refused. But this is not the way we went about this, and we are reasonably confident that we will see this through and that this deal will be accepted. But we're not there yet. It's early days. At this stage, competition authority can only examine a precise well-defined deal. This entails an accepted bid. This will come in a few months. But for now, as I said earlier, we believe that in Europe in the current situation, the competition analysis has moved -- has changed. So this is why we're rather optimistic when it comes to this deal.

We don't have further questions. I'd like to give the floor back to Olivier Roussat for closing comments.

Ladies and gentlemen, the conference call is over. Thank you for your attention. We are ready to answer all your questions. The whole team is ready to answer your questions. I'd like to remind you that the group's 9 months 2025 results will be published on November 5. Have a pleasant day. Thank you. [Statements in English on this transcript were spoken by an interpreter present on the live call.]