Orange and MasMovil sign a $19 billion merger agreement in Spain

  • Merged entity creates challenger for Telefonica
  • The agreement includes a payment of 4 billion euros to Orange
  • The combined entity aims for an IPO in the medium term

PARIS/MADRID, July 23 (Reuters) – Orange (ORAN.PA) and MasMovil (MMBMF.PK) have signed a binding agreement to combine their businesses in Spain under an agreement valuing the merged entity at nearly 19 billion, the two telecommunications companies said in a statement Saturday.

The merger creates a heavyweight covering mobile and broadband, posing a challenge to top player Telefonica and analysts say it could pave the way for similar alliances in markets including Italy, Portugal and the Kingdom -United.

The merger of the second and fourth telecom operators, respectively, also leaves Vodafone in third position, although benefiting from a more consolidated market which should reduce competition and increase operators’ profitability.

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The merger should test the European Commission’s appetite for consolidation. He has previously opposed deals that reduce the number of players from four to three in major markets.

The Spanish mobile phone market is a four-way fight with Telefonica’s Movistar brand holding a 28.24% share, Orange 22.91%, Vodafone 22.26% and MasMovil with 20.55%, according to data from the market regulator CNMC in March.

The Commission’s response will also indicate whether it is willing to favor a market structure with fewer operators and potentially higher investment in infrastructure – as demanded by the industry – or whether it will stick to a centralized position on the consumer marked by fierce competition and low prices.

The merger in Spain is based on an enterprise value of 18.6 billion euros ($19 billion), the companies said in the statement, including 10.9 billion for MasMovil and 7.8 billion for Orange Spain .

The merged entity would generate more than 7.3 billion euros in annual revenue and more than 2.2 billion euros in annual base operating profits, they said.

The combined joint venture will be equally controlled by Orange and MasMovil. An envelope of 6.6 billion euros will finance the operation.

It will include an upfront payment of 4.2 billion euros to Orange, to compensate for its lower valuation compared to MasMovil, given its higher level of debt.

The deal includes a two-year lock-up clause that prevents Orange and MasMovil from selling their shares, an Orange spokesman said.

The goal is to have a possible initial public offering (IPO) after a lock-up period, the spokesperson said.

Orange will have a right of first refusal on the shares held by MasMovil in the joint venture at the end of the blocking period, the Orange spokesperson said, allowing it to take control of the entity and to consolidate it in its accounts.

The transaction is subject to the approval of EU antitrust authorities. Its closure is scheduled for the second half of 2023 “at the latest”.

Orange is controlled by the French state through a 23% stake, while MasMovil’s parent company is London-based Lorca JV Co, a holding company majority-owned by buyout funds KKR, Providence and Cinven.

($1 = 0.9794 euros)

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Reporting by Mathieu Rosemain; edited by Angus MacSwan and Jason Neely

Our standards: The Thomson Reuters Trust Principles.

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