Orange, Masmovil Enter Talks to Create $21 Billion Spanish Unit

Benoit Berthelot, Bloomberg News

An illuminated logo on the Orange SA stand on the opening day of the MWC Barcelona at the Fira de Barcelona venue in Barcelona, Spain, on Monday, Feb. 28, 2022. Over 1,800 exhibitors and attendees from 183 countries will attend the annual event, which runs from Feb. 28 to March 3. Photographer: Angel Garcia/Bloomberg , Bloomberg

(Bloomberg) -- Orange SA and Masmovil Ibercom SA have entered exclusive merger talks in an attempt to consolidate the Spanish telecom market, in a deal that would give the combined company a total enterprise valuation of 19.6 billion euros ($21.3 billion).

The new company would take the form of a 50-50 joint venture, co-controlled by Orange and Masmovil, according to a statement Tuesday.

Orange has long been willing to consolidate the ailing Spanish market. The French based carrier is Spain’s second largest operator, followed by Vodafone in third place. Masmovil, the fourth player, was delisted two years ago after a leveraged buyout by three private equity funds.

The deal also includes a right to trigger an IPO under certain conditions, and a path-to-control right for Orange to consolidate the combined entity.

Together, the carriers have a combined revenue of over 7.5 billion euros, and an EBITDAaL of over 2.2 billion euros, according to the statement. The joint venture is expected to bring 450 million euros of annual synergies from the third year after closing.

“I look forward to creating this joint venture with Masmovil, building on our existing successful collaboration, to become a stronger player capable of making the investments required to develop the Spanish market”, said Orange Orange Chief Executive Officer Stephane Richard said in the statement.

Spain is one of Europe’s most competitive telecom markets, with scores of brands competing against each other. The larger firms, such as Orange, Masmovil and Vodafone, have for months been flagging that returns on capital are unsustainable at current levels.

Masmovil, whose CEO is founder Meinrad Spenger, is owned by a group of three buyout firms: Cinven Ltd, KKR & Co, and Providence Equity Partners LLC, who acquired the carrier in 2020.

Since then, Masmovil acquired another Spanish telecom firm, Euskaltel, and has been growing its presence in Portugal.