– Bouygues (EN FP)/ Orange SA (ORA FP): Bloomberg reported last night that Orange SA is in early discussions about buying French conglomerate Bouygues SA’s telecommunications and media assets. In a later FT article, Orange told that it “refuses to comment on press rumours that have artificially driven the market for the past two years,” and noting that out of the French telecom players it is “one with the least need for consolidation.

After Altice’s failed attempt to buy Bouygues Telecom for EUR 10n in June this year (Bouygues rejected the offer as too much execution/antitrust risk and being opportunistic (as Bouygues thought and thinks it could generate EBITDA margins of 25% by 2017 vs just below 20% in 2015), it looks now Orange has identified Bouygues Telecom as a target after just a week ago it was reported that Orange had hired investment banks Morgan Stanley and BNP Paribas to assess the merits of doing a deal with other network operators in Europe.

We believe that Bouygues at pre-rumour EUR 34.5 prices in about EUR 9bn or EUR 26-27 per share for Bouygues’s Telecom and Media assets (Telecom about EUR 8bn and Media about EUR 1bn). Given Bouygues’s previous EUR 10n rejection for its Telecom assets, any deal for Media and Telecom should be at least EUR 11n (which is somehow understood to be in Orange shares): assuming a EUR 12n offer, would imply premium of about EUR 3bn or about EUR 8.90 per share.

Given rumour status, huge antitrust risk (Orange + Bouygues = 50% market share in French broadband market, and 45-50% in French mobile, well ahead of their respective number 2s) and notorious complexity to pull off a deal with Bouygues for its telecoms assets, we are highly sceptical of such a Bouygies-Orange tie up (rumour) and would short Bouygues should it be up more than 5% today.

– BG Group plc (BG/ LN): Woodside abandons its all-share $8 bln takeover bid for Oil Search. This basically shelves what would have been the biggest energy takeover in Asia. Albeit an unsolicited offer (which was rejected), Oil Search equally represented a very high quality E&P with respect to producing and growth assets: this highlights the very real risk that Shell might also reconsider its BG deal in the current oil price collapsing environment.  We would exit our whole BG position at current GBp 80 levels, and would await entering spread again should oil prices start recovering back above $40/bbl.