Bouygues also enlisted the support of the government through the state CDC fund, along with existing Bouygues Telecom shareholder JCDecaux Holding, parent company of listed outdoor advertising firm JCDecaux, and the Pinault family.

CDC confirmed that it would take a 3 percent stake in a combined Bouygues Telecom-SFR group.

Industry Minister Arnaud Montebourg has come out in favor of the Bouygues offer and has raised a number of "problems" he sees with the offer from Numericable, a business controlled by the Dutch-listed group Altice.

Under its new proposal Bouygues said it will pay Vivendi another 1.85 billion euros in cash, taking the cash element of its offer to 13.15 billion euros and leaving Vivendi with just 21.5 percent of a separately listed Bouygues Telecom-SFR combine instead of 43 percent under its previous proposal. Vivendi wants to reduce its exposure to telecoms and focus on its media operations.

Both bidders had already raised their offer once before Vivendi decided on March 14 to enter exclusive talks with Numericable over an offer of 11.75 billion euros ($16.4 billion) in cash, plus a 32 percent stake in the resulting business.

Altice said on Thursday that it was still in exclusive talks with Vivendi. Vivendi also said it was still in exclusive negotiations and declined to comment on the Bouygues offer.

HIGH STAKES

The choice of Numericable was seen as a blow to Bouygues Telecom, the third-biggest player, which has been hit hard by the price war sparked by new entrant, Iliad and its Free Mobile service.

In a bid to allay possible regulatory concerns over the position of the future combined entity, Bouygues has agreed to sell its own mobile network and some spectrum to Iliad if it acquires SFR.

If Numericable wins, a tie-up with SFR would allow it to become a major player in mobile and grab a large network of stores and sales staff. The combined company would have almost 7 million broadband customers and 21 million mobile customer.

(Additional reporting by Dominique Vidalon; Writing by Andrew Callus)

By Gwénaëlle Barzic

Stocks treated in this article : BOUYGUES, JC DECAUX, VIVENDI, ILIAD, NUMERICABLE, ALTICE