Orange and MásMóvil agree on their historic merger, valued at 18,600 million | companies

Orange and MásMóvil today announced a definitive agreement to integrate their respective businesses in Spain and create a 50%-owned operator, which will lead key markets such as fixed broadband and mobile telephony.

The deal is valued at 18.6 billion euros, 7.8 billion euros for Orange Spain and 10.9 billion euros for MásMóvil. The figure is lower than the 19,600 million established last March, after the announcement of the start of exclusive negotiations.

The transaction will not close before the second quarter of 2023, since it must obtain the various approvals from the competent administrative, competition and regulatory authorities. In principle, according to sources in the sector, the final decision will have to come from Brussels, given the European dimension of the operation, in particular because of the international presence of Orange.

In a press release, the two partners indicated that the joint venture it will create a sustainable player with sufficient financial capacity and scale to enable it to continue to invest and secure the future of infrastructure competition in Spain, to the benefit of consumers and businesses. “The joint venture, which would bring together complementary businesses such as those of MásMóvil and Orange, would lead to significant efficiencies, allowing the combined entity to accelerate investments in FTTH and 5G, which will be beneficial for Spanish consumers,” they say.

As part of the final agreement, the enterprise value of Orange Spain is set at €7,800 million (7.2 times 2022 EBITDAaL and 37.1 times 2022 EBITDAaL – eCapex) and that of MásMóvil, which includes the acquisition of Euskaltel, at 10,900 million, 8.7 times 2022 EBITDAaL and 14.9 times 2022 EBITDAaL – eCapex). Orange Spain completed the deal with virtually no debt, while the MásMóvil group, following the acquisition strategy carried out in recent years, had a debt close to 7,000 million euros.

According to the two companies, Due diligence which have been carried out since last March, have generated potential synergies of more than 450 million euros per year, from the fourth year after the closing of the operation.

The transaction is supported by an envelope of 6.6 billion euros of non-recourse debt to the shareholder, which will finance, among other things, a payment of 5.85 billion euros to the shareholders of Grupo Orange and MásMóvil, which is controlled by KKR, CInven and Providence, in addition to a group of Spanish investors such as Inveready, José Eulalio Poza and the Ybarra Careaga family, as well as employees and telecom executives, among which its CEO stands out, Meinrad Spenger.

This distribution to shareholders will be asymmetrical, since it implicitly implies the rebalancing of the equity value in favor of Orange to separately reflect the different levels of indebtedness of the two companies. This debt package is mainly made up of bank debt, provided by a “pool” of banks. MásMóvil’s existing debt will remain in the new company. Post-closing, the financial policy agreed between Orange and Lorca JVCO, the parent company of MásMóvil, includes a leverage target of 3.5 times the net debt to EBITDA ratio to facilitate an IPO of the company. joint venture medium term. Orange and Lorca JVCO would have equal voting rights in the resulting combined entity.

The initial agreement between the parties in March provided for the right to launch an IPO under certain conditions agreed by both parties and, on the other hand, the right for Orange to take control and consolidate the resulting combined entity in IPO case. The French telecom has always insisted on its intention to be the industrial partner, with the aim of being a key player in Spain, its second market in terms of contribution to the group’s revenues, just behind France itself.

The union of Orange and MásMóvil represents the largest corporate transaction recorded in the Spanish market in recent decades and will lead to a reduction in the number of mobile network operators from four to three. Orange is currently the second operator, while MásMóvil was reinforced in 2021 as the fourth operator, after the acquisition of Euskaltel. Telefónica will remain the leading Spanish operator in terms of turnover, but the new company will dominate the market for mobile telephone lines and fixed broadband.

The joint venture would integrate the assets and equipment of the two companies in Spain, drawing on their highly complementary business models, according to their partners, to serve 4.0+3.1 million fixed customers (of which 3.0+2.6 are convergent), 11.5+8.7 million postpaid mobile customers and nearly 1.5 million TV customers.

The joint venture would own vast network assets, which would give it competitive differentiation in the market: an ultra-fast fiber optic network with a presence throughout the national territory that reaches 16 million real estate units; and a state-of-the-art mobile network with national coverage, which handles a very high volume of traffic in the Spanish market.

The resulting entity would become a stronger competitor, with annual revenues of approximately €7.5 billion and an EBITDAaL of €2.2 billion, and would gain the scale and efficiency needed to undertake expansion ambitious and sustainable development of its FTTH and 5G networks. ; in addition to contributing to the maintenance and further development by Spain of highly competitive telecommunications infrastructures.

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