The latest attempt by a leading European operator to gain scale has emerged, with Orange and MásMóvíl announcing they have started exclusive discussions to combine their operations in Spain.
The combination would take the form of a 50-50 joint venture with a combined enterprise valuation of €19.6bn. Valuations are attractive for both businesses, with Orange Spain’s enterprise value at €8.1bn and MásMóvíl’s enterprise value at €11.5bn. The deal would see the combined entity adopt equal governance rights and neither party would consolidate the combined operations.
The agreement between the parties also includes a right to trigger an IPO under certain conditions for both parties, and a path-to-control right for Orange to consolidate the combined entity in the case of an IPO. Orange would neither be forced to exit nor to exercise these options.
Yet by far the most interesting part of the transaction would be the pooling of the respective companies’ assets and what that would mean for the Spanish telecoms arena. The two firms say the joint venture would build on “highly complementary” business models as well as an existing successful collaboration, to serve just over seven million fixed customers – of which 5.6 million are convergent – 11.5 million Orange Spain mobile subs and 8.7 million MásMóvíl contract mobile customers, and close to 1.5 million TV customers.
The combined entity would have revenues of more than €7.5bn, EBITDAaL of more than €2.2bn and the ability to gain the necessary scale and efficiency for today’s market.
With such a combined base and assets, the companies expressed confidence that it would have a competitive edge in the market, including a state-of-the-art, nationwide fibre-to-the-home (FTTH) network reaching more than 16 million homes and a leading-edge mobile network with full national coverage, serving large volumes of traffic in the Spanish market. Moreover, the firms said they would undertake an ambitious and sustainable expansion of its FTTH and 5G networks and contribute to Spain maintaining and further developing a competitive telecom infrastructure.
Only recently, Orange announced what it called the largest 5G network deployment plan on the 700 MHz frequency band in Spain, progressively rolled out throughout 2022 in more than 1,100 towns and cities, 820 of them having between 1,000 and 50,000 citizens.
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They also assured that with a “comprehensive and complementary” portfolio of brands, the joint venture would provide Spanish consumers and businesses with competitive and differentiated value propositions to serve the needs of all market segments, with high quality connectivity, an excellent customer experience and a comprehensive portfolio of innovative services in the challenging digital landscape.
Commenting on the deal, Orange chairman and CEO Stéphane Richard said: “I look forward to creating this joint venture with MásMóvíl, building on our existing successful collaboration, to become a stronger player capable of making the investments required to develop the Spanish market.
“I know I can count on Jean-François Fallacher and the entire Orange Spain team for their full mobilisation until the closing in order to make this deal a success.”
MásMóvíl CEO Meinrad Spenger added: “To assure leading telecom infrastructure in 5G and FTTH as well as outstanding service in Spain, we need strong operators with sustainable business models. The combination of Orange and MásMóvíl would be beneficial for the consumers, the telecom sector and the Spanish society as a whole.”
The transaction is expected to be signed by the second quarter of 2022 and should close by Q2 2023, subject to approval from the relevant administrative, competition and regulatory authorities. However, an analyst from leading European credit rating agency Scope Ratings has warned that Orange faces a long period of regulatory uncertainty over the planned merger in a test of Europe’s anti-trust framework in the sector.
Jacques de Greling, director of corporate ratings at Scope Ratings, noted that the anti-trust framework in Brussels has not changed for some time, even though Orange believes the arguments for in-market consolidation are now stronger.
Richard said the price to pay for triggering in-market consolidation in a market like Spain’s is the 12-18 months anti-trust process in Brussels, with all the associated uncertainties.