PARIS/MADRID (Reuters) -France’s Orange and Spain’s MasMovil on Tuesday announced exclusive talks on a Spanish merger that would challenge the market’s top player Telefonica.
The deal, which would create a heavyweight in revenue spanning mobile telecoms and broadband, will also test European authorities’ appetite for consolidation after years of opposition to takeovers.
“Should the deal receive the green light, it could open the floodgates to a host of other alliances in markets such as Italy, Portugal, and the UK. The sector will be watching developments with an eagle eye,” said CCS Insight analyst Kester Mann.
With now second-ranked Orange possibly expanding, it will also test plans at third-ranked Vodafone, which has been seen as a potential seller of its Spanish businesses.
Orange shares were up about 2.4% against a weaker overall market in early trade while Vodafone was down 2.2%. MasMovil is unlisted. Telefonica rose about 3% as investors hope the deal might ultimately be good for the entire market.
MasMovil and Orange have until June to reach a definitive agreement to create a 50-5% joint venture owned by Orange and MasMovil’s shareholders, buyout funds KKR, Cinven and Providence.
The new company will have a combined enterprise value of 19.6 billion euros ($21.28 billion), the two companies said in a statement in which they opened the door to an IPO “under certain conditions”.
The combined entity would generate revenue of more than 7.5 billion euros and offer annual synergies of 450 million euros from the third year after closing, they said.
“I look forward to creating this joint venture with MasMovil, building on our existing successful collaboration, to become a stronger player capable of making the investments required to develop the Spanish market,” Orange CEO Stephane Richard said.
Richard, who recently said that his main regret is the failure to achieve in market consolidation in France, is stepping down as Orange’s CEO.
Top officials at Spanish carriers have repeatedly called for market consolidation to reduce competition and boost operators’ profitability at a time they need cash to invest into the rollout of 5G mobile telecom infrastructure.
($1 = 0.9212 euros)
(Reporting by Sudip Kar-Gupta, Inti Landaurpo and Andres Gonzalez, adittional reporting by Supantha Murkherjee; editing by Vinay Dwivedi and Jason Neely)
