By Ruth Bender and Rick Carew
PARIS--For the second time in two years, the French government
has scared a foreign company away from buying a stake in Orange
SA's video streaming site Dailymotion, echoing an incident that has
cast a shadow over French startups' efforts to woo foreign
investors.
Hong Kong-based telecommunication company PCCW Ltd. Monday
pulled out of talks with partially state-owned telecom operator
Orange to purchase a stake in Dailymotion, after the French
government publicly urged Orange to look for European buyers for
the site.
The message didn't go down so well in Hong Kong.
"[A]n environment where policies appear to favor a French or
European solution is discouraging for international business
participation," PCCW said in a statement. "We will therefore
withdraw from our discussions with Dailymotion and its current
owners."
The collapse of the PCCW talks mark the second time that a near
deal between Orange and a foreign company has fallen apart after
intervention from the French government, a setback for a country
that is trying to attract more foreign investment to boost its
economy.
In 2013, then-Industry Minister Arnaud Montebourg prevented
Orange from selling a majority stake in the site to U.S. Web giant
Yahoo Inc. After the deal fell apart, Mr. Montebourg said the U.S.
tech firm might have "devoured" a French jewel. Local media have
since referred to the incident as the "Dailymotion affair."
The blockage created a furor both inside and outside France,
with some American companies and venture capitalists saying they
had become more reluctant to make purchases in the country.
After Mr. Montebourg left the cabinet last year, the French
government signaled it was more open to the idea of a foreigner
joining with Orange in Dailymotion. Both Economy Minister Emmanuel
Macron and France's deputy minister for digital affairs, Axelle
Lemaire, have said that a new "Dailymotion affair" should be
avoided.
Dailymotion appeared close again to finding a foreign buyer last
month when Orange's management told its board that it intended to
enter into exclusive talks with PCCW over a deal to sell a 49%
interest in Dailymotion, according to people familiar with the
matter. That deal would have helped Orange develop the site
abroad.
But it was Mr. Macron who last week urged Orange to explore
European buyers before entering into the final phase of
negotiations with a foreign investor. Mr. Macron's office insisted
on Monday that it wasn't opposed in principle to a deal with PCCW,
but defended the minister's decision to block Orange from entering
into a deal for exclusive talks with the Hong Kong company.
"This is a wise shareholder decision that has allowed for
discussions with several potential bidders," a spokeswoman for Mr.
Macron said, adding: "PCCW remains a credible partner in the eyes
of the government."
Orange declined to comment on PCCW's ending discussions
Monday.
It wasn't immediately clear how far talks with other potential
partners were. French daily Le Monde said Monday that Vivendi SA
had made an offer for the streaming site. According to a person
familiar with the matter, French financial services company Fimalac
was also among interested bidders.
Vivendi declined to comment, while Fimalac didn't respond to
requests for comment.
Potential partners for Dailymotion have come and gone over the
past few years. Vivendi SA's Canal Plus pay TV has already once
tried to buy a controlling stake in the streaming site but failed
to reach agreement with Orange, which sought to retain a
controlling stake, according to people familiar with the
matter.
Only as recently as last month, Orange Chief Executive Stéphane
Richard stressed the need to find a global partner for Dailymotion.
Dailymotion's future "isn't French," he told investors during a
strategy presentation. "It needs an international partner," he
said.
PCCW has been ambitious in expanding its interests in television
and online video programming.
In March, the company signaled its desire to grow further in
video streaming outside of Hong Kong when it acquired a controlling
stake in California-based Vuclip, a mobile video-on-demand service
that operates in six countries with a strong focus on southeast
Asia. The terms of that deal weren't disclosed.
In its statement Monday, PCCW said it "will continue to invest
to expand its media business internationally."
Write to Ruth Bender at Ruth.Bender@wsj.com and Rick Carew at
rick.carew@wsj.com
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