• After the period of exclusive negotiations started on March 8^e 2022, ORANGE and MASMOVIL (LORCA JVCO) signed a binding agreement to combine their activities in Spain[1].
• The transaction involves an enterprise value of 18.6 billion euros, 7.8 billion euros for ORANGE Spain and 10.9 billion euros for MASMOVIL.
• The transaction is subject to the approval of antitrust authorities and other competent administrative authorities and is expected to be finalized during the second half of 2023 at the latest.

As indicated in the prior announcement, the combination of the activities of ORANGE Spain and MASMOVIL would take the form of a 50-50 joint venture co-controlled by ORANGE and MASMOVIL (LORCA JVCO), with equal governance rights in the combined entity. The agreement between the parties includes a right to trigger an IPO under certain conditions for both parties after a defined period and, in such event, an option for ORANGE to take control of the combined entity at the price of l ‘Initial Public Offering.

The joint venture between MASMOVIL and ORANGE will create a sustainable player with the financial capacity and scale to continue investing to foster the future of infrastructure competition in Spain for the benefit of consumers and businesses.

A joint venture between the two complementary businesses would lead to significant efficiencies, allowing the combined company to accelerate investments in FTTH and 5G that will benefit Spanish customers.

As part of the final agreement, the enterprise value of ORANGE Spain is set at €7.8 billion (7.2x EBITDAaL 2022E and 37.1x EBITDAaL 2022E – eCapex)[2] and MASMOVIL (which includes the acquisition of EUSKALTEL) at €10.9 billion (8.7x EBITDAaL 2022E and 14.9x EBITDAaL 2022E – eCapex)[2].

The due diligence conducted since March shows potential synergies in excess of €450 million per year to be achieved by the fourth year after closing.

The transaction is supported by a €6.6 billion non-recourse debt package which will fund, among other things, a €5.85 billion upfront payment to ORANGE Group and MASMOVIL shareholders. This distribution to shareholders will be asymmetrical because it also incorporates an equalization payment in favor of ORANGE to reflect the different levels of indebtedness of the two autonomous companies. This set of debts is mainly composed of bank debts, provided by a large pool of banks. MASMOVIL’s existing debt will remain in place. Post-closing, the financial policy agreed between ORANGE and LORCA JVCO includes a leverage target of 3.5x the net debt/EBITDA ratio to facilitate an IPO of the joint venture in the medium term.

The transaction is subject to the approval of antitrust authorities and other competent administrative authorities and is expected to be finalized during the second half of 2023 at the latest. Until these approvals and closing conditions are satisfied, the two companies will continue to operate independently.

Christel Heydemann, CEO of ORANGE, said: “I am very pleased to announce today the conclusion of these negotiations. This agreement paves the way for the creation of a joint company that combines the strengths of ORANGE and MASMOVIL into a single, stronger operator that will enable investments in 5G and fiber, benefiting customers throughout Spain. I firmly believe that the creation of this new company is of fundamental importance for the Group, the Spanish telecom market and for our customers.

Meinrad Spenger, CEO of MASMOVIL, commented: “It’s a great day for Spanish consumers as well as for our stakeholders. Together with ORANGE, we plan to form a strong operator with a sustainable business model and the ability to invest in class-leading infrastructure, technology and talent. We expect this to drive competition, digitalization and innovation in the Spanish market.”