Orange, Masmovil to Create $21 Billion Spanish Telecom Unit
(Bloomberg) -- Orange SA and Masmovil Ibercom SA have entered exclusive merger talks in an attempt to consolidate the Spanish telecom market, in a deal that would give the combined company a total enterprise valuation of 19.6 billion euros ($21.3 billion).
The new company would take the form of a 50-50 joint venture, co-controlled by Orange and Masmovil, according to a statement Tuesday. Masmovil carries a debt of around 6 billion euros, according to a spokesperson, which will imply a cash payment being made to Orange to balance the merger.
Orange shares rose as much as 3.2% in early trading in Paris following the announcement.
Orange has long been willing to consolidate the ailing Spanish market. The French-based carrier is Spain’s second-largest operator, followed by Vodafone in third place. Masmovil, the fourth player, was delisted two years ago after a leveraged buyout by three private equity funds.
The deal also includes a right to trigger an IPO under certain conditions, and a path-to-control right for Orange to consolidate the combined entity.
Together, the carriers have a combined revenue of over 7.5 billion euros, and an EBITDAaL of over 2.2 billion euros, according to the statement. The joint venture is expected to bring 450 million euros of annual synergies from the third year after closing.
“The deal is the first major test of regulators’ appetite for in-market consolidation since the pandemic”, writes Kester Mann, analyst at CCS Insight. “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.”
Spain is one of Europe’s most competitive telecom markets, with scores of brands competing against each other. The larger firms, such as Orange, Masmovil and Vodafone, have for months been flagging that returns on capital are unsustainable at current levels.
Masmovil, whose CEO is founder Meinrad Spenger, is owned by a group of three buyout firms: Cinven Ltd, KKR & Co, and Providence Equity Partners LLC, who acquired the carrier in 2020.
Since then, Masmovil acquired another Spanish telecom firm, Euskaltel, and has been growing its presence in Portugal.
Orange’s disclosed exclusive discussions with Masmovil to combine Spanish operations look encouraging -- with a forward 7.5x EV/Ebitdaal multiple (38.7x operating FCF) for the former vs. 9.9x (17.8x) for the latter -- appearing to reflect a fair valuation for the French operator’s beleaguered unit. Targeted run-rate synergies of 450 million euros amount to 6.5% of the combined cash cost -- a relatively high figure -- which may be reduced via structural remedies.
Erhan Gurses, BI telecoms analyst
Telefonica, the leading carrier in Spain and the former monopoly, has said publicly that it is supportive of consolidation in the market.
A deal between Masmovil and Orange would land a blow to Vodafone, which has been struggling for several years in Spain and was long touted as the most likely candidate to tie-up with Masmovil. But while Orange is the country’s second-largest fiber optic network, most of Vodafone’s broadband is offered through cable, making synergies more difficult.
Masmovil is already a major wholesale client for Orange, both in fiber and mobile networks.
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