It doesn’t have a name. It is not known where its headquarters will be. Neither does its strategy. But the new telecommunications giant in Spain is already a reality.
After more than two years of bureaucracy and arduous negotiations, the merger between the second and fourth telephone operators in Spain, between Orange and MásMóvil, has obtained this week the last of the safe passages it needed. The approval of the Spanish Government came after authorization with conditions from the European Commission and the National Commission of Markets and Competition (CNMC).
Despite the conditions for transferring spectrum demanded by Brussels and investment demanded by Spain, the company that emerges from this merger “between equals”, as the Minister for Digital Transformation, José Luis Escrivá, underlined, will be the new giant of telecommunications in Spain.
It will be the leader in fixed broadband customers, with 7.3 million fixed lines, 41.8% of the market, compared to the 33.5% that Movistar will have (5.8 million lines) and which leaves the brand Telefónica out of first place for the first time in history. The new company will also achieve leadership in mobile lines, with nearly 30 million and 42.8% of the market. In customers with television, the leadership will still be maintained by Telefónica, since Movistar has 48.5% of the market and the merged company will hold 31.6%. Third place, with 20%, will be for Vodafone.
In financial terms, Telefónica will also continue to be the first company, but the merged entity will be “stronger, with greater scale and with high growth potential,” according to Barclays analysis. The merger of assets alone will generate revenues of €7.4 billion and gross profit (ebitda) of more than €2.3 billion, with an enterprise value of €18.6 billion, according to the merger agreement. Barclays expands that figure and opens its valuation band to a maximum of 19.2 billion.
An upward trend that is in the sights of the Orange group, as confirmed by its CEO, Christel Heydemann, in the French group’s latest results presentation. Based on the merger agreement, both companies expect to achieve 450 million euros in synergies. Of them, around 230 could arrive from a new management of their networks. “Only Orange’s network has enough power to support all the traffic of both companies, so MásMóvil’s assets could be free for sale or rental to third parties,” say sources in the sector. The rationalization of mobile connection points and transport network routes to connect with large nodes is another source of synergies, as well as the optimization of contracts with suppliers.
The reorganization of brands is also expected, especially on the MásMóvil side, which currently operates with five national brands and three local ones. All of these movements, although the company denies it, could lead to a personnel adjustment. The Minister of Digital Transformation assured last Tuesday that “sufficient employment commitments” have been demanded. An ambiguity that did not please the unions, who are already asking for more employment guarantees for the more than 8,000 employees of the new company.
All these details will be known in a short time. Now, the urgency is to shore up the new power structure, which in principle is shared 50/50 between the two companies. The visible face as CEO will be the founder of MásMóvil, Meinrad Spenger. Ludovic Pech, current CEO of Orange Spain, will occupy the position of financial director. Leading the board of directors will be Orange, with Jean-François Fallacher, current president of the board of Orange Spain and CEO of Orange France. Fallacher was the Orange man who, when he was in charge of the business in Spain, convinced MásMóvil to merge, beating Vodafone. In the new council, it is expected that the funds that own MásMóvil (KKR, Civen and Providence) will have one representative each and Orange will complete it until reaching equality.
That “equality” will be ephemeral. The merger agreement gives Orange the right to control the company and Pech already confirmed during the presentation of Orange Spain’s results in February that it will exercise that right to buy 1% of the shares within a maximum period of two years. The next step on the horizon is the IPO, which could be considered after two years.
