By Leila Abboud and Dominique Vidalon
PARIS (Reuters) - Patrick Drahi, the owner of France's number two telecoms player Numericable-SFR (PA:NUME), has offered to buy smaller rival Bouygues Telecom (PA:BOUY) for about 10 billion euros (£7.15 billion) in cash, two people familiar with the matter said.
The move, which was first reported by the Journal de Dimanche, would take the French mobile market from four to three players at a time when the merits of such consolidation are being hotly debated in Europe.
Any potential deal could face opposition in France, with two ministers already firing warning shots on Sunday.
Economy Minister Emmanuel Macron reiterated his view that the time was not right for consolidation in the sector, which he said needed investment. France will soon kick off an auction for 4G mobile spectrum and the government is pushing operators to invest in fibre broadband.
Budget Minister Christian Eckert told France Inter radio the government was "not in favour" of the potential deal, as it was worried over its impact on "investment and employment".
Billionaire Drahi, who owns Numericable-SFR's parent company Altice (AS:ATC), is offering to buy all of third-place Bouygues Telecom, which has 11 million mobile clients.
With massive cost savings possible from combining the two companies, Drahi is offering a rich price, higher than in an earlier round of sales talks last year. Most analysts value Bouygues Telecom at around 5 billion euros.
Drahi wants to move now because of concerns that interest rates could rise in the coming months, making Altice's approach of highly leveraged deals more costly, said one source.
Altice has snapped up U.S. cable company Suddenlink, Portugal Telecom, and SFR in the past 18 months.
It remains to be seen, however, whether Martin Bouygues, the scion whose family conglomerate owns the Bouygues Telecom, will agree to sell. He is pushing for a price closer to 11 billion euros, the sources said.
After Drahi beat Bouygues to buy SFR last year, Martin Bouygues has said the operator can thrive on its own and has said numerous times that he does not want to sell the unit he created, which sits alongside his father's construction and roads business.
To avoid competition issues, Drahi has lined up an agreement with low-cost player Iliad (PA:ILD) that would buy much of Bouygues Telecom's mobile spectrum and towers, said the sources. Market leader Orange (PA:ORAN) could take on several hundreds of Bouygues Telecom staff.
Bouygues Telecom's parent Bouygues will hold a board meeting on Tuesday to review the offer.
Altice, Bouygues and Iliad declined comment. Numericable-SFR and Orange could not be reached for comment.
In France, the entry of low-cost player Iliad into the mobile market in 2012, has put pressure on prices and on existing players to consolidate.
Loss-making Bouygues Telecom has been the centre of attention after losing the bidding war in April 2014 for SFR to cable group Numericable.
Encouraged by the French government, Orange, Iliad and Bouygues held three-way talks about a consolidation deal last year, but they collapsed over valuation and how to split up Bouygues between the two buyers.
Reacting to the report, Macron told Reuters: "I repeat that today consolidation is not something to wish for, for the sector. Employment, investment and a better service for consumers are the priorities. A consolidation would have a negative impact on these issues."
The issue of how much telecoms deal-making is too much is raging in Europe right now with acquisitions picking up pace.
Last week EU Competition Commissioner Margrethe Vestager said in Paris she was wary of telecoms mergers, warning that consumers could end up with higher bills and less innovative companies.
In Austria, which went to three operators in 2013, customers are paying more for mobile services although they are also consuming more data as well, and the effects of similar deals in Ireland and Germany remain to be seen.
Two sources close to the situation in France said they did not think Macron's comments closed the door on a deal, adding that the minister likely wants assurances that the upcoming auction of 700 megahertz spectrum will be successful.
A deal between Altice and Bouygues would reduce the bidding field, and could limit the money brought in to state coffers.