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Concluding negotiations that began in March 2022, telcos Orange and Masmóvil have now signed a binding agreement to combine their operations in Spain, in a deal that will see the creation of businesses with a combined enterprise value of €18.6bn.
Masmóvil Group offers fixed broadband, mobile and TV services for residential, businesses and wholesale through its main brands Yoigo, Masmóvil, Pepephone, Lebara, Llamaya, Lycamobile and Virgin telco, as well as through regional brands Euskaltel, R, Telecable, Embou and Guuk. In Portugal, Masmóvil owns the brand Nowo, which offers fixed and mobile services for residential customers.
With FTTH networks and 3G, 4G and 5G mobile network infrastructure, the company has a reach of more than 27 million available fibre households and 18 million with ADSL. Its 4G/5G mobile network covers 98.5% of the Spanish population and the company has launched its 5G services, covering more than 900 cities in the Spanish territory.
The combination of the activities of Orange Spain and Masmóvil – valued at €7.8bn and €10.9bn respectively – will, if authorised by the relevant regulatory bodies, take the form of a 50-50 joint venture co-controlled by Orange and Masmóvil with equal governance rights in the combined entity. The agreement between parties includes a right to trigger an IPO under certain conditions for both parties after a defined period and, in such a scenario, an option for Orange to take control of the combined entity at IPO price.
The joint venture is seen as creating “a sustainable player in Spain with the financial capacity and scale to continue investing to foster the future of infrastructure competition in Spain for the benefit of consumers and businesses”.
The coming together of the two businesses is also seen as leading to significant efficiency gains, allowing the combined company to accelerate investments in FTTH and 5G that will benefit Spanish customers. The companies added that due diligence conducted since March has shown potential synergies in excess of €450m per annum to be reached by the fourth year post closing.
The transaction is being supported by a €6.6bn non-recourse debt package that will finance, among other things, a €5.85bn payment up-streamed to the Orange Group and Masmóvil shareholders. This distribution to the shareholders will be asymmetric, as it also embeds an equalisation payment in favour of Orange to reflect the different levels of indebtedness of the two standalone businesses. This debt package mainly comprises bank debt, provided by a large pool of banks. Masmóvil’s existing debt will remain in place. Post closing, the financial policy agreed between the two telcos includes a leverage target of 3.5x net debt/EBITDA ratio to facilitate an IPO of the joint venture in the medium term.
The transaction is subject to approval from antitrust authorities and other relevant administrative authorities, and is expected to close during the second half of 2023 at the latest. Until such approvals and closing conditions are satisfied, the two companies will continue to operate independently.
Commenting on the move, Orange CEO Christel Heydemann said: “I am very happy to announce the conclusion of these negotiations today. This deal paves the way for the creation of a joint company that combines the forces of Orange and Masmóvil into a single, stronger operator that will enable investments in 5G and fibre, benefiting 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.”
Masmóvil Group CEO Meinrad Spenger added: “This is a great day for Spanish consumers as well as for our stakeholders. Together with Orange, 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.”