In a deal valued at close to $19 billion, Orange and MasMovil have officially agreed to combine their operations in Spain, the two telecommunications companies announced on Saturday.
The merger establishes a powerhouse that spans mobile and broadband, challenging dominant operator Telefonica and potentially paving the way for similar alliances in markets like Italy, Portugal, and the UK, according to analysts.
A more concentrated market, which is anticipated to lessen competition and increase operator profitability, leaves third-ranked Vodafone stranded as a result of the merger of the second and fourth largest telecom operators, respectively.
The partnership will likely put the European Commission’s desire for consolidation to the test. It has historically rejected agreements that limit the number of players in significant markets from four to three.
According to data from market regulator CNMC in March, there are four major players in Spain’s mobile market: MasMovil with 20.55 percent, Orange with 22.91 percent, Vodafone with 22.26 percent, and Telefonica’s Movistar brand with 28.24 percent.
The Commission’s reaction will also show whether it is willing to support a market structure with fewer operators and maybe larger infrastructure expenditures, as advocated by industry, or if it will maintain a consumer-centric posture characterized by robust competition and low prices.
According to the business’s statement, the merger in Spain is predicated on an enterprise value of 18.6 billion euros ($19 billion), of which MasMovil would receive 10.9 billion and Orange Spain will receive 7.8 billion.
According to them, the combined company would produce more than 7.3 billion euros in yearly revenue and more than 2.2 billion euros in core operating profits.
Both Orange and MasMovil will have equal control over the united joint venture. The deal will be funded by a 6.6 billion euro loan package.
It will also include a 4.2 billion euro upstream payment to Orange to make up for MasMovil’s lower valuation due to the latter’s greater debt load.
According to an Orange representative, the agreement contains a two-year lock-up clause that forbids Orange and MasMovil from selling their interests.
After a lock-up period, the goal is to have a potential initial public offering (IPO), according to the spokeswoman.
After the lock-up period, Orange will have the first option to purchase the MasMovil shares in the joint venture, according to a spokesperson for Orange. This will enable Orange to assume control of the business and consolidate it into its financial statements.
The EU antitrust regulators must approve the transaction. It is anticipated to be finished “at the latest” by the second half of 2023.
With a 23 percent interest, the French government controls Orange, and buyout investors KKR, Providence, and Cinven own the bulk of MasMovil’s parent company, London-based Lorca JV Co.
