Spanish mobile market consolidates
Orange Spain and MásMóvil have finally announced details of their merger into a near €19 billion behemoth as they prepare to compete with market leaders Telefónica and Vodafone Spain, which now finds itself Spain’s third biggest operator. The merger consolidates the Spanish mobile market from four to three operators, a rationalisation that the EU had previously blocked in the UK.
After months of due diligence Orange Spain and its domestic rival MásMóvil announced the signing of a binding agreement to combine their businesses in Spain. The deal has been under discussion since March and in April Orange Spain confirmed its intention to be the major partner in the future merger with MásMóvil. “I am very happy to announce the conclusion of these negotiations today,” said Orange Group CEO Christel Heydemann.
This week-end’s transaction is based on an enterprise value of €18.6 billion, €7.8 billion for Orange Spain and €10.9 billion for MásMóvil. As reported in March, the Orange Group subsidiary intended to acquire the majority of the shares of the joint venture at a later date, according to CEO Jean-Francoise Fallacher. A merger agreement, signed between Orange and Lorca JVCO, the parent company of MásMóvil controlled by Cinven, KKR and Providence, stipulates equal voting rights in the resulting combined entity. However, the agreement includes the right to launch a Public Offer for Sale (OPV) under certain conditions agreed by both parties, as well as the right of Orange to take control and consolidate the resulting combined entity in the event of this IPO.
“This is a great day for Spanish consumers and our stakeholders,” said MásMóvil CEO Meinrad Spenger, “we plan to form a strong operator with a sustainable business model and the capacity to invest in world-class infrastructure, technology and talent. We anticipate this will drive competition, digitisation and innovation in the Spanish market.”
A joint venture between the two complementary businesses would lead to significant efficiency gains, allowing the combined company to accelerate investments in FTTH and 5G that will benefit Spanish customers., they claimed. Due diligence conducted since March shows ‘potential synergies’ of around €450m per annum to be reached by the fourth year post closing.
“This deal paves the way for the creation of a single, stronger operator that will enable investments in 5G and Fibre and benefit customers across Spain. I strongly believe that the creation of this new company is of fundamental importance for the Group, the Spanish telecoms market and for our customers,” said Orange CEO Heydemann.
The transaction is supported by a €6.6 billion non-recourse debt package that will finance, among a €5.85 billion payment up-streamed to the Orange Group and MásMóvil shareholders. This debt package is mainly comprised of bank debt, provided by a large pool of banks. MásMóvil’s existing debt will remain in place. Post closing, the financial policy agreed between Orange and LORCA JVCO includes a leverage target of 3.5 times the net debt/EBITDA ratio to facilitate an IPO of the joint venture in the medium term.