Orange
* CEO confirms that Orange is on track to keep delivering strong commercial and financial KPIs;
* Talks are progressing with other players to prepare for the consolidation in the French telecom market
* We think both points could help the re-rating of Orange vs European peers; retain Buy rating, TP EUR18 unchanged
French consolidation can only happen if Orange benefits
Both Orange and Bouygues have announced (companies’ press releases, 5 January 2015) that they are discussing consolidation of the French telecom market from 4 to 3 integrated players. The CEO describes the operation as complex from a regulatory point of view but that the French competition authority might be in charge if an agreement is eventually reached with Bouygues. This would also require Iliad (ILD FP, Buy, CMP EUR224.50) and Numericable-SFR (NUM FP, Buy, CMP EUR36.85) to participate in the Bouygues Telecom assets’ carve-out. Key to shareholders, Orange’s CEO continuously repeated yesterday that the only way to reach an agreement is for it to create value to Orange shareholders. He insisted on the fact that a deal could only be structured in a way that benefits Orange, a condition he set very clearly. We deduct from the CEO comments that the initial share dilution (Orange could pay some of Bouygues telecom assets in shares and cash) would be very limited before synergies, well below the 15% Bouygues stake in Orange that was suggested in the press (JDD, 3 January 2016).