Orange and MásMóvil commit to €18.6bn Spanish merger
- Following exclusive talks, the Spanish telcos are now engaged to be wed
- If they complete the merger, they will create Spain’s largest telco by number of connections
- But there will be lots of regulatory scrutiny as it will remove one of only four mobile service providers in a major market
Following four months of exclusive negotiations, Orange Spain and MásMóvil have signed a binding agreement to merge their operations and create a single mobile and fixed service provider for the Spanish market. The new company, valued at €18.6bn, would have the scale and potential financial performance to help it to thrive in the future.
If all regulatory and antitrust approvals are gained – and that process is expected to take more than a year – the combined 50-50 joint venture operation would, based on current customer numbers, have annual revenues of more than €7.3bn, almost 25 million mobile customers and 7.1 million fixed broadband customers, with 5.8 million customers taking both mobile and fixed broadband services in a convergence package (an important metric for Orange).
This would make it the market leader in Spain, a bigger player than Telefónica (which offers its services using the Movistar brand) in terms of mobile and fixed connections, as the national incumbent telco had almost 15.9 million mobile connections and more than 5.8 million fixed broadband customers at the end of the first quarter of this year. Telefónica’s Spanish revenues, though, are better: Its annualised revenues based on its first-quarter performance would be around €12bn.
In terms of market share by connections, a combined Orange and MásMóvil would command more than 43% of the mobile market and more than 42% of the fixed broadband market, with Telefónica (Movistar) commanding a mobile market share of more than 28% and a fixed broadband market share of almost 36%, while Vodafone Spain (with 13.5 million mobile and three million fixed broadband customers) has just over 22% of the mobile market and just short of 19% of the fixed broadband sector according to Spain’s regulatory, the Comisión Nacional de los Mercados y la Competencia (CNMC).
Spain is a highly competitive market and all service providers have been suffering from squeezed margins and challenging financials in recent years. In its first-quarter report, Orange noted a year-on-year decline in revenues of 4.6% “in a market that is still fiercely competitive, especially in the low-cost segment”.
Bringing the two operations together will help reduce costs, the betrothed believe. They have identified “significant efficiency gains, allowing the combined company to accelerate investments in FTTH and 5G that will benefit Spanish customers”, and estimate that by the fourth year of being an integrated, single operator, the joint venture can achieve annual savings of more than €450m, of which more than half would come from network cost synergies. About a third of those synergies would come from efficiencies gained from having combined marketing, sales and customer care teams, so job cuts are inevitable. Orange has already been slimming down its headcount in Spain, having reduced its workforce to 6,630 at the end of March from 7,340 a year earlier.
Ultimately, an initial public offering (IPO) could be an option and could be triggered by either party: If a public listing of shares does occur, Orange has the option to take control of the joint venture at the IPO price. See the announcement about the agreement for further details.
The initial deal is financed by a €6.6bn “debt package”, mainly comprising loans from multiple banks.
Orange wasn’t the only operator interested in merging with MásMóvil to create a stronger rival to Telefónica – Vodafone was also keen on tying the knot with MásMóvil but lost out to Orange. During Vodafone’s latest earnings report conference call, which coincidentally was held today, Vodafone Group CEO noted that merger and acquisition (M&A) conversations were underway in all of the markets the operator had identified as being suitable for consolidation, with Spain being one of them, of course. Vodafone’s options are now very limited with MásMóvil now off the market, leaving it with fixed line infrastructure M&A options only.
Of course, the Orange/MásMóvil deal still has to clear multiple regulatory hurdles, and that’s not a given as the deal will effectively reduce the number of mobile service options for users in Spain from four to three. But there is now a lot of pressure on regulators to enable such combinations and, as mentioned by industry analyst Kester Mann of CCS Insight in our previous coverage of this operator marriage, whether this merger is allowed, and under what conditions, will be a good indicator for other potential consolidation deals across Europe.
- Ray Le Maistre, Editorial Director, TelecomTV
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