Orange eyes €19bn Spain JV with Masmovil

French telecoms giant Orange has entered talks with Masmovil over plans to combine their operations in Spain as part of a 50-50 joint venture.

Any deal would see the creation of a new telecoms player valued at around €19.6 billion to compete with Telefonica’s Movistar and Vodafone. The business will boast more than 20 million mobile, seven million fixed and almost 1.5 million TV customers should a deal be reached.

Orange noted that the venture would have revenue of more than €7.5 billion and generate synergies with an annual run rate more than €450 million from the third year after the closing of the transaction. It would also mark a final move for outgoing Orange chief executive Stephane Richard, who is stepping down at the end of his term.

Richard commented: “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. I know I can count on Jean-François Fallacher and the entire Orange Spain teams for their full mobilization until the closing to make this deal a success.”

It will come as a blow to Vodafone CEO Nick Read, who talked of consolidation across Europe at the recent Mobile World Congress in Barcelona. Read has been under pressure from Vodafone shareholders, including Cevian Capital, to seek news deals, especially in markets where the business is struggling.

MasMovil, the fourth biggest operator, was taken private in 2020 after a leveraged buyout by private equity groups KKR, Providence Equity Partners and Cinven.

Under the terms outlined, the parties have 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.

Meinrad Spenger, CEO of Masmovil, 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 Masmovil would be beneficial for the consumers, the telecom sector and the Spanish society as a whole.”

CCS Insight analyst Kester Mann, writing just before the merger was announced, claimed Europe’s telco market is ripe for consolidation.

He noted that mergers and acquisitions between mobile players fell out of favour after the European Union blocked Three’s acquisition of Telefonica’s UK arm, O2, in 2017.

“Spain seems more likely to witness the region’s next big deal. Outgoing Orange CEO Stephane Richard openly discussed possible consolidation on his company’s earnings call, saying Orange is “actively working” on potential deals and noting that several scenarios are possible,” he wrote in a blog for CCS Insight.

Mann added: “A tie-up with MasMovil would appear its best chance of gaining regulatory approval, but Vodafone is understood to be exploring a deal with the firm. MasMovil itself acquired regional operator Euskaltel in 2021 for over €2 billion.

“Recently Spain has shown more leniency toward the telecom sector, an apparent acknowledgement of the pandemic-proven role it can play in improving competition and prosperity. For example, the government has introduced more favourable licensing conditions and now offers tax relief on network deployments.”

Any deal 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, Orange said.