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Orange to buy Jazztel for $4.40bn [ITWeb]
[September 17, 2014]

Orange to buy Jazztel for $4.40bn [ITWeb]


(ITWeb Via Acquire Media NewsEdge) Orange has offered to buy Spanish telecoms operator Jazztel for around €3.4 billion ($4.40 billion) in a deal that could help the French company jump ahead of rival Vodafone in the country's mobile market.



Orange's offer for Jazztel is at €13 per share in cash, valuing it at €3.4 billion. The French company will pay for the acquisition with hybrid bonds and a capital increase of up to €2 billion.

Jazztel chairman Leopoldo Fernandez Pujals has agreed to sell his 14.5% stake.


"We are doing this deal to accelerate our growth in Spain, particularly in fixed-mobile convergent offers," said Orange chief executive Stephane Richard.

"The new company will be the incontestable number two in fixed services and third in mobile behind Vodafone, but we think we'll be able to take second place pretty quickly." Consolidation in the Spanish telecoms business has been brewing for months, driven by tough competition and falling prices during the country's recession.

When number two mobile operator Vodafone agreed to buy cable operator Ono in March for €7.2 billion, Orange found itself isolated in its second-biggest market without a fixed-line network. Leader Telefonica has increasingly pushed discounted bundles of fixed and mobile services to keep customers loyal.

Orange hired Bank of America Merrill Lynch to examine its options in Spain, sources earlier told Reuters, and the bank went on to advise on the Jazztel deal.

Jazztel would give Orange about 1.5 million broadband subscribers and help it match competitors' fixed, TV and wireless packages. It plans to keep both brands.

Network savings Orange said the deal would add to earnings per share and operating free cash flow by 2017, and would help it save €1.3 billion mostly through network efficiencies. Jazztel now rents capacity on Orange's network to provide mobile services.

Orange said its offer values Jazztel at 8.6 times 2015 earnings before interest, tax, depreciation, and amortisation (EBITDA) after cost savings, or a 34% premium to Jazztel's average share price in the past month.

Investment bank Raymond James said Orange was paying 12 times 2015 core profit (EBITDA) before synergies, higher than sector take-out multiples (price tags) of 8-9 times.

"While we believe Orange has achieved the unlikely feat of making Vodafone's bid for Ono look relatively inexpensive we regard the deal as constructive for the Spanish market," Citigroup analyst Simon Weeden wrote in a note.

Vodafone paid about 10.5 times EBITDA for Ono.

Jazztel shares rose 6% to €12.75. Orange fell around 2%, partly in response to the share issue plan.

Orange had considered a bid for Jazztel earlier this year but walked away over disagreements on price and because main shareholder Pujals wanted cash, a person familiar with the matter said. Orange initially proposed a merger of its Spanish business into Jazztel and then a share issue there instead of at Orange, the person said, but Pujals rejected the idea.

Orange's board voted 13 to two in favour of latest deal and workers' representatives voted against because of what they considered as a high price and potential job losses of around 400, the person familiar with the matter said.

Yoigo off table The offer also means Jazztel and Orange will not push ahead for now with the potential acquisition of TeliaSonera AB's Yoigo, Spain's smallest mobile player.

Both previously said they were studying bids for Yoigo, which parent Teliasonera wants to sell because it considers the business "subscale".

"Today we don't need to acquire Yoigo and we will focus on the combination of Orange and Jazztel," Richard said during a call with analysts. "But we support consolidation in general and if we can play a role later on, then we will consider it." By paying for Jazztel in part through a capital increase, Orange will be able to stick to a target for net debt of no more than two times operating profit by year-end.

"We don't want to take any risk (with credit rating agencies) or put pressure on our capacity to deliver on fibre broadband investments at home," said Orange finance chief Ramon Hernandez.

Richard said Orange would try to keep the capital increase as small as possible to minimise shareholder dilution.

If it carried out the maximum €2 billion rights issue, it would represent a 6.7% dilution for shareholders, according to investment bank Raymond James.

Orange expects the deal to close in the first half of 2015. Richard said competition regulators would undertake a shorter "phase one" review, used for deals with less market impact. The deal also needs shareholder backing of at least 50.01%.

Spain's industry minister Jose Manuel Soria told RNE radio: "The consolidation process leads to fewer operators, which will have more muscle to invest in networks and will improve offers to consumers." (c) 2014 ITWeb Limited. All rights reserved. Provided by SyndiGate Media Inc. (Syndigate.info).

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