By Mathieu Rosemain
PARIS (Reuters) - A proposed deal between state-controlled telecoms group Orange <ORAN.PA> and Bouygues <BOUY.PA> to create France's biggest telecoms operator collapsed on Friday, ending an attempt to ease a price war that has ravaged their margins.
The collapse of the proposed 10 billion euro ($11.4 billion) cash-and-share deal is a blow to the two companies and the French government, which was heavily involved behind the scenes.
A stand-off between billionaire Martin Bouygues and French Economy Minister Emmanuel Macron about the clout the businessman would have gained in the former state monopoly had effectively ended the deal, sources had told Reuters earlier. [nL5N17426F]
The proposed tie-up was widely seen as a make-or-break chance to reduce the number of telecoms groups to three from four and prop up profits, which have been depressed since the arrival of low-cost rival Iliad <ILD.PA>.
"In a market where the possibility of consolidation is now ruled out for the long term, Bouygues Telecom will continue its standalone strategy," Bouygues, the construction-to-media conglomerate led by Martin Bouygues said in a statement.
Orange, in which the French government owns about 23 percent, also confirmed negotiations had ended.
"They will all be kicking themselves," Francois Mallet, an analyst with Kepler Chevreux, said on BFM Business.
"The state has a big responsibility in this. The big loser is Bouygues, let's not kid ourselves," he said.
A source at the French Economy Ministry said that the main hurdle had been the risks involved in getting a deal across the line, with competition concerns a factor.
"It was an extremely complex deal and there was the question of the competition authority hanging," the source told Reuters.
The tie-up would have made Bouygues the second-biggest shareholder of Orange after the French state, whose 23 percent stake would have been diluted.
The French Economy Ministry had asked Bouygues to accept capping its potential stake in Orange for seven years, under a so-called standstill clause.
It had also asked it to accept giving up for 10 years the double-voting rights Bouygues would get as a long-term investor in Orange, another source said.
($1 = 0.8779 euros)
(Writing by Michel Rose; Editing by David Evans and Alexander Smith)