Orange/MasMovil: everyone expects the Spanish acquisition
Assuming the deal is cleared by the competition authorities, expect more to follow
Consolidation in Spanish telecoms has long conformed to the unfair national stereotype of putting jobs off until mañana. Now, that tomorrow is dawning. Two of the country’s top four operators plan a €19.6bn joint venture that in turn paves the way for France’s Orange — should it so wish — to assume ownership of mobile telephony group MasMovil.
Europe’s competition authorities have hitherto had little truck with consolidation: the price wars bleeding the region’s operators are a boon for consumers. The previous wave of consolidation was marked by hefty remedies as Orange, which acquired Spanish cable group Jazztel, knows only too well. The proposed MasMovil joint venture will show whether regulators are willing to soften their stance.
Optimists should take heart from an improving political climate. Governments, keen to improve broadband access, realise that companies need decent returns if they are to invest. Orange was careful to note that its proposed JV would have the scale to carry out “ambitious and sustainable” expansion of fibre and 5G networks.
The deal attributes an enterprise value of €8.1bn to Orange’s Spanish unit, or 7.5 times this year’s estimated ebitdaal (including leased assets). The figure for MasMovil is €11.5bn, a multiple of 10 times. The duo will have equal ownership but private equity-owned MasMovil will also make an equalisation payment — which New Street Research estimates will come in at about €1.6bn — to reflect its €6.6bn net debt burden. Orange Spain has no net debt.
There is little to quibble with number-wise. The combined company, with revenues of €7.5bn and ebitdaal of more than €2.2bn, will overtake Vodafone in market share. Orange is pencilling in synergies of €450mn from the third year; taxed and capitalised worth about €3.1bn.
Assuming the deal is cleared, expect more to follow. There are plenty of oversaturated markets in Europe where would-be consolidators are ready to pounce. They include Vodafone which may be smarting from missing out — or inflating its own value — with MasMovil. But the M&A floodgates will take time to open fully.