LONDON/PARIS (Reuters) - The board of Bouygues (BOUY.PA) was meeting on Wednesday afternoon to approve an increase in its bid for Vivendi's SFR (VIV.PA) in an attempt to gain the upper hand against a rival buyer, said two people familiar with the matter.
The two people said the improved bid could take the cash portion of Bouygues' offer up to as much as 11.4 billion euros ($15.8 billion) from 10.5 billion last week.
Construction-to-telecom group Bouygues is vying against local cable operator Numericable NUME.PA to buy France's second-biggest telecom operator in a deal that will overhaul the country's telecom market.
If Bouygues wins and gets regulatory approval, it would cut the number of mobile operators back down to three only four years after low-cost player Iliad (ILD.PA) won a license to join the mobile club.
Iliad's Free Mobile service, which offers unlimited voice and texts and 3 gigabytes of data for 19.99 euros, touched off a price war that led to a 20 percent drop in average revenue per mobile subscriber in France.
SFR's current owner Vivendi became convinced that it wanted to exit telecoms to focus on its media businesses because of the damage Free Mobile has caused. SFR's core operating profit has halved from 2011 levels to 1.07 billion euros, and Vivendi took a 2.4 billion euro writedown on the unit in February.
For Bouygues, the third-largest mobile carrier, winning SFR would assure it an independent future and help it gain its own fixed network to offer broadband services, analysts said. Bouygues Telecom has been hard hit by Iliad's arrival to mobile, and was free cash flow negative in 2012 and barely positive in 2013.
A third person close to the deal said Vivendi was expecting an improved offer from Bouygues before a deadline for bids tonight. On top of the cash, Bouygues' offer would leave Vivendi with a 46 percent in the combined SFR-Bouygues.
Numericable's bid is at 10.9 billion euros and a 32 percent stake in the new entity. Numericable's backer Patrick Drahi said on Wednesday that he would not raise his bid.
Bouygues got additional firepower on Monday when it agreed to sell its mobile network and some spectrum to smaller rival Iliad (ILD.PA) for 1.8 billion euros if its bid for SFR is accepted.
A fourth source explained that Bouygues could find the funds for the higher bid by using some of the proceeds from the Iliad deal.
Bouygues was not immediately available for comment, while Vivendi declined to comment.
Vivendi's board is set to meet on Friday to weigh the two bids, as well as its original plan to spin off SFR into a separate company by July.
"The Vivendi board will not focus narrowly on one number: It will look at each bid as a whole, including the pledges to protect jobs and the two companies' strategy," said the first person. ($1 = 0.7212 Euros)
Additional reporting by Gwenaelle Barzic and Matthieu Protard; Editing by Andrew Callus and Louise Heavens