Orange is hunting acquisitions in Spain and is reportedly looking at triple play operator Jazztel and budget mobile operator Yoigo as potential targets.
The French incumbent’s focus has been concentrated by mobile rival Vodafone Group’s pursuit of…
Orange is hunting acquisitions in Spain and is reportedly looking at triple play operator Jazztel and budget mobile operator Yoigo as potential targets.
The French incumbent’s focus has been concentrated by mobile rival Vodafone Group’s pursuit of Spanish cableco Ono and the prospect of missing out on potential consolidation, people familiar with the matter told Bloomberg.
Jazztel has been long-mooted as a takeover target and its stock has risen more than 70% over the past year, opening at €9.99 today, as merger talk has intensified. It now has a market capitalisation of €2.4bn. However, Berenberg analyst Wassil El Hebil has set a price target of €12.00 and told TelecomFinance that Orange may have to shell out €3.1bn to get a deal done.
Paying a sum that high would mean that Orange would likely fail to meet its net debt to EBITDA target by the end of the year. The company was aiming for 2.2x, but that has been moved to 2.4x following a €2bn tax dispute with the French state. Orange would have to increase that multiple again if it agreed a €3bn takeover of Jazztel.
El Hebib said that although a deal wouldn’t be great in terms of Orange’s debt pile, ratings agencies might look kindly upon it, especially if it was part of wider convergence and consolidation in Spain which could take it from four mobile and five fixed operators to three of each.
Bernstein Research analyst John Keith thought although possible, an Orange takeover of Jazztel was only likely if Vodafone succeeds in taking over Ono. The cableco said last week that it planned to press ahead with an IPO, although observers have described the situation as a dual process.
That followed informal talks with Vodafone which did not lead to a firm offer, although the British telco still has time to come back with a bid ahead of a flotation.
“If Vodafone does buy Ono – which is by no means certain – then it leaves Orange without fixed, which would be a major disadvantage for them in the market,” Keith said.
However, Keith warned that Jazztel could prove very expensive for Orange, and he also questioned whether Spain was enough of a priority for the French giant to make such a costly acquisition.
El Hebib mischievously added that if Ono does decide to list, Vodafone may turn its attentions to Jazztel.
But a European telecoms banker who advised on a number of recent cable deals downplayed chances of a Vodafone move for Jazztel. He referred to the size of Jazztel – which has a significantly smaller market share than Ono – and noted now that Vodafone had decided to get into cable, Ono would be the more attractive asset.
Eyes on Yoigo again
Yoigo is the other target Orange is reported to be looking at. The TeliaSonera subsidiary was put on the market in 2012 and linked with sales to Orange and Vodafone, but its parent called off the process last April.
The Scandinavian operator’s then-CEO said that no bidder had offered a price “which fully reflects [Yoigo’s] future potential”.
Keith thought while Orange might be looking at Yoigo again, an acquisition wouldn’t be game-changing.
“It would improve the mobile market for them but it wouldn’t solve the fixed issue,” he said. A deal would likely come with regulatory issues as it would reduce the Spanish market from four mobile network operators to three. However, there is a question as to how much of a competitor Yoigo really is with roughly only 6% of the market.
El Hebib floated the idea that TeliaSonera and Orange could combine their mobile operators to create a joint venture that could then acquire Jazztel. Yoigo has been doing well in the market but El Hebib warned that this would likely change if its three larger rivals make convergence plays, so it could make sense for them to team up. Orange has scale while TeliaSonera has a stronger balance sheet.
Another Berenberg analyst, Barry Zeitoune, wrote in a note that Yoigo risked becoming “deeply marginalised” in a convergent Spain and said that the operator was a “problem asset” for TeliaSonera.
Zeitoune estimated Yoigo could fetch around €1.6bn, but that if Orange and Vodafone buy fixed operators TeliaSonera would be put in a weak negotiating position.
One company which won’t be part of consolidation in Spain is Liberty Global. The pan-European cable giant was said to be rivalling Vodafone for Ono, but when asked about a bid for Ono on Liberty’s Q4 call last Friday, CEO Mike Fries dismissed the possibility.
“We don’t really comment on M&A transactions, but in this instance I can more or less tell you we probably aren’t looking at Spain,” Fries said.
“That market does not fit for a lot of reasons … into what we are trying to achieve in the European marketplace and we don’t have the synergies or, quite frankly, the confidence in that country or that asset that others have. So I don’t see us participating there.”
