The merger would begin to consolidate the crowded Spanish market, offering both companies better scale to take on market leader Telefonica

Today, Orange and MasMovil have today announced that they have entered into discussions to form a 50:50 joint venture (JV) in Spain. 

The deal values Orange’s Spanish unit at €8.1 billion and MasMovil’s at €11.5 billion, for a combined enterprise value of €19.6 billion.

The combined, converged operator would have roughly 7.1 million fixed line customers and 20.2 million mobile subscribers. Its combined FTTH network would reach over 16 million homes. 

The JV would also boast around 1.5 million TV customers.

The operators say that the merger would generate a wealth of relevant synergies, valued at over €450 million from the third year of operation post-closure.

“To assure leading telecom infrastructure in 5G and FTTH as well as outstanding service in Spain, we need strong operators with sustainable business models. The combination of ORANGE and MASMOVIL would be beneficial for the consumers, the telecom sector and the Spanish society as a whole,” said Meinrad Spenger, CEO of MasMovil.

Notably, the deal also includes a clause allowing for a potential initial public offering in future, with Orange having the right to buy a controlling share of the business at a fixed share price if it so desires. 

The combination would mark a major shakeup for the Spanish telecoms market, merging the second and fourth largest operators into an entity large enough to challenge the hegemony of Telefonica. 

Spain’s third place player, Vodafone, which had also previously been tied to merger talks with MasMovil, would find itself left out in the cold. 

All of Spain’s operators have been under increasing financial pressure in recent years, partly as a result of the expensive rollout of 5G and fibre, with profit margins growing slimmer and slimmer. Various executives across the sector have called for much-needed consolidation, with Vodafone’s Group CEO Nick Read notably saying he would not rule out any options when it came to potential M&A dealmaking. 

Now, with today’s announcement, it seems that the most attractive merger option for Vodafone Spain is set to be taken off the table. 

MasMovil and Orange suggest that the deal will be signed in Q2 of this year, closing in Q2 2023, assuming regulatory approval.

This is a big assumption, however. European regulators have typically looked very cautiously on mergers of this size. The merger of MasMovil and Vodafone Spain would surely have been much more palatable to the regulators and much more likely to succeed. 

However, the regulators have been beginning to loosen their grip on the markets in recent years, partly due to a growing appreciation for the way in which Europe’s fragmented telecoms sector is making effective investment into 5G and fibre networks more troublesome. 

If this merger does get the green light, it is likely to be seen a significant shift in regulatory feeling, potentially acting as a catalyst for further consolidation across Europe.

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