Orange and MasMovil in exclusive talks to form €19.6bn Spanish joint venture
Telecoms deal would value Orange at €8.1bn and MasMovil at €11.5bn
Orange and MasMovil are in exclusive talks to combine their Spanish businesses through a €19.6bn joint venture in what is likely to be the first of several attempts this year to streamline Europe’s fragmented telecoms markets.
The news will be perceived as a blow to Vodafone, which had also been talking to parties in Spain about possible deals for its Spanish business.
Vodafone’s chief executive, Nick Read has been under pressure from activist investor Cevian Capital to seek deals more aggressively to simplify the company’s sprawling telecoms business, and dispose of poorly performing units.
Telecoms executives have stepped up calls for consolidation in countries where there are four or more players, which they say creates excessive competition and cost pressures, stifling investment.
The European telecoms sector is highly fragmented and has suffered from years of poor returns.
Spain’s largest operator is Telefónica, followed by Orange, and Vodafone. MasMovil, the fourth biggest operator, was taken private in 2020 after a leveraged buyout by private equity groups KKR, Providence Equity Partners and Cinven.
Previous attempts to strike deals in the competitive telecoms markets — including an attempt to merge Three and O2 in the UK in 2016 — have been blocked by the European Commission in Brussels.
Industry figures hope regulators and governments may now be more receptive to deals as they have become more aware of the huge investments needed to build full-fibre networks and roll out 5G at scale.
Ramon Fernandez, deputy CEO at Orange, said that the deal would “help us gain competitiveness and scale and undertake ambitious investments in Spain”.
It could allow Orange and MasMovil to leapfrog Vodafone in the country, with the two combined businesses set to become the biggest mobile operator and second biggest broadband operator in Spain, according to market analysis by Analysys Mason.
Fernandez said: “[Spain] is a market where you have too many players . . . there was a need to see some consolidation,” adding that talks had been going on with MasMovil for several months.
“We were not looking for an exit from Spain, we were looking for a scheme that would help us comfort our position in the Spanish market.”
The deal would value Orange at €8.1bn and MasMovil at €11.5bn, and the two companies would share governance equally between them. They would have combined revenues of more than €7.5bn and earnings before interest, tax, depreciation and amortisation of more than €2.2bn, they added.
The deal also includes the right for either party to trigger a public listing under certain conditions. Under the terms of the agreement, Orange would have the right to buy a controlling share of the capital at today’s prices in the case of a future float.
Vodafone held talks with MasMovil last year about a merger between the two Spanish businesses, but the two parties were unable to agree on the price and structure of the company, according to two people with knowledge of the conversations.
After those talks fell apart, MasMovil agreed to buy its smaller telecoms rival Euskaltel for €2.1bn, combining Spain’s fourth and fifth largest operators, and creating a more formidable competitor to the three largest operators.
Vodafone’s shares fell 1.5 per cent to 119.20p in early morning trading, while Orange’s gained nearly 1 per cent to reach €10.37.