Numericable IPO To Catalyse French Consolidation

A long-anticipated initial public offering (IPO) of shares in French broadband cable operator Numericable could launch in early November 2013, according to local media reports. The offering potentially values the company at EUR5bn (US$6.6bn), or up to nine times the company's projected EBITDA for 2013. With rival broadband operator SFR expected to be separated from its media and con tent-orientated parent in the near future, BMI sees great potential for a merger of these two companies in the medium term to create a more credible challenger to incumbent France Telecom-Orange .

The European telecoms market is increasingly gearing itself to meeting consumer demand for 'everything everywhere' one-stop-shop communications packages. Incumbents such as France Telecom, which own mobile and fixed high-speed broadband infrastructure, are in a very good position to exploit this trend - where consumers can access fixed and mobile voice, broadband, internet and TV services via multiple devices in the home or on the move - and alternative operators are struggling to put themselves in a similar position.

Thus, Vodafone is looking to acquire Kabel Deutschland , Liberty Global has acquired Virgin Media in the UK and Ziggo in the Netherlands while Telekom Austria has been adding local cable TV companies to its mobile operators' operations across central and eastern Europe. The merger of SFR and Numericable has, therefore, been anticipated for some time. The prospects of both companies listing or being sold by their leading investors creates the ideal conditions for such a merger to be realised.

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Numericable is the largest independent cable TV operator in France, having grown through the absorption of smaller regional players over the last two decades. Its network now covers 9.9mn homes, representing around one-third of TV households in France and, as of June 2013, its fibre-optic network connected 4.977mn households either directly or indirectly through partnerships with telcos such as France Telecom, SFR and Bouygues Telecom . Around 1.322mn subscribers took multiple services, of which 1.002mn were served directly. Multiplay customer numbers grew by 11.2% y-o-y, driven by demand for high-speed (100Mbps-plus) fibre services. Regulator ARCEP reports that Numericable accounts for 75% of all very high-speed broadband connections in France.

SFR, meanwhile, served 21.049mn mobile and 5.164mn fixed broadband subscribers as of June 2013, with 55% of its mobile customers owning smartphones and using its 3G/4G networks to access advanced data services. It, too, is investing in fibre-to-the-home and is looking to grow its nascent enterprise services business through fibre and cloud computing offerings. We believe SFR would see considerable value in Numericable's fibre assets as well as its successful business-to-business (B2B) unit, Completel .

It is believed that Numericable's investors - which currently include private equity groups Cinven , Carlyle and Altice - approached Vivendi with an offer to acquire SFR in 2012, but its financially-troubled parent, Vivendi , demanded an overly-high price for the b usiness. Vivendi's situation has worsened since then and the group is moving quickly to sell many core businesses for more realistic prices. Vivendi has said that it may either sell SFR outright or conduct an IPO. Either way, conditions are now more favourable than ever for the long-anticipated amalgamation of France's largest alternative operators to go through.

Vodafone could still enter the fray, however, with offers of its own for either or both operators. The UK-based company was, for many years, a partner with Vivendi in SFR but differences in management styles and strategies forced Vodafone to withdraw in 2011 . Having recently agreed to sell its stake in US-based Verizon Wireless for US$130bn and drawn up a new plan to consolidate its presence in key European markets, Vodafone could decide to re-enter the vibrant French converged services market, complementing its strong presence in the UK, Germany, Spain and Italy.

However, France remains a high-tax, low margin market for technology invest ors and acquiring Numericable or SFR or an amalgamation of the two would be a high-cost, high-risk investment for a company that will take some time to fully digest the acquisition of Kabel Deutschland.

Bouygues Telecom, France's third mobile network operator, has also been touted as a potential buyer of Numericable. Like SFR, it is attempting to reinvent itself as a converged services provider and lacks the scale to challenge France Telecom-Orange. The company is also investing in fibre broadband and B2B offerings such as cloud computing. However, BMI believes it lacks the internal financial resources to manage such a take-over while its infrastructure-focused parent may be unwilling to underwrite such a high-risk deal while its core businesses remain challenged by the slow economic recovery across Europe.

This article is tagged to:
Sector: Telecommunications
Geography: France, Germany, Spain, United Kingdom, Italy, Netherlands, United States

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