UPDATE 1-Altice France rejects joint bid for SFR from French telecoms operators

Altice France, the owner telecoms firm SFR, has rejected a bid from three French rivals to buy the operator, Altice CEO Arthur Dreyfuss told staff in a memo on Wednesday, setting back a potential deal that could spur more consolidation in the European telecoms market.

Altice France, the owner telecoms firm SFR, has rejected a bid from three French rivals to buy the operator, Altice CEO Arthur Dreyfuss told staff in a memo on Wednesday, setting back a potential deal that could spur more consolidation in the European telecoms market. Bouygues Telecom, Iliad's Free and Orange said late on Tuesday they had submitted a 17-billion-euro ($19.8 billion) non-binding offer to buy most of Altice France's assets, valuing the company at 21 billion euros. The joint bid spurred hopes for more sector consolidation in Europe on Wednesday, with stocks rising in Paris despite the French government saying it would be vigilant about the deal.

"We confirm that we received an indicative offer last night for part of Altice France's assets. This offer has been immediately rejected," said Dreyfuss in a memo to employees seen by Reuters. Bouygues said it had taken note of Altice's decision to reject the offer. Iliad and Orange did not respond to Reuters' requests for comment.

Earlier on Wednesday, French Finance Minister Roland Lescure said he was going to be "extremely vigilant" about the deal. "I'm going to be vigilant about two things: the impact on consumer prices and the impact on the quality of service," Lescure said in an interview on French radio RTL.

"There's a competition authority; it's independent. It's there to protect consumers, and it will do so," he said. The French government is the largest investor in Orange.

BID SPURS EUROPEAN CONSOLIDATION HOPES Shares of Bouygues, which had touched their highest price in more than seven years earlier in the session, slightly pared gains after Altice's rejection to trade 8% higher by 0925 GMT. Orange's shares were up 3%.

Other French stocks were also up, with the country's benchmark CAC 40 index gaining over 2%. Italian peer Telecom Italia's shares meanwhile rose 2.4%. SFR is France's second-largest telecoms provider with more than 19 million mobile subscribers and 6.1 million fibre customers as of June.

France has had four mobile network operators since 2012: Orange, Bouygues, Iliad's Free, and SFR. Any deal to reduce the number of carriers to three would have to get approval from European or French regulators. GETTING REGULATORS ON BOARD The European Commission approved a 4-to-3 merger in Spain last year, but requested from MasMovil and Orange a package of remedies to create the 18-billion-euro MasOrange operator.

French antitrust agency chief Benoit Coeure said in an interview with daily Les Echos in July that if a deal involving SFR was presented to the regulator, it would examine it without prejudice, but without ignoring difficulties either. J.P. Morgan analysts said in a research note that the 17-billion-euro offer was better than expected.

A deal for SFR might also trigger consolidation in other markets, with Iliad deciding for a sale of its operations in Italy, said analyst Giorgio Tavolini from Italian brokerage firm Intermonte. "It would make sense for the group to leave Italy - where it does not generate cash, once spectrum costs are considered, to focus its resources on the French market," he said in a daily report.

($1 = 0.8593 euros)

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