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Orange and Masmovil to Combine their Activities in Spain

Christel Heydemann, CEO of Orange
Christel Heydemann, CEO of Orange

Following exclusive negotiations initiated in March, Orange and Masmovil have signed a binding agreement to combine their operations in Spain. The transaction is based on an enterprise value of €18.6 billion, of which €7.8 billion for Orange España and €10.9 billion for Masmovil. This transaction is subject to the approval of the relevant competition and administrative authorities. It is expected to be completed by the second half of 2023.

As announced in March, the combination of Orange España and Masmovil will take the form of a 50-50 joint venture jointly controlled by Orange and Masmovil, which will have equal governance rights in the new joint venture. The agreement between the two companies includes the right for either party to trigger an initial public offering (IPO) after a predefined period and under certain conditions, and provides for a call option for Orange in such a scenario to take control of the combined entity at the IPO price.

The combination of Masmovil and Orange will create a sustainable player with the financial capacity and scale to continue to invest and contribute to the development of infrastructure competition in Spain for the benefit of consumers and businesses.

This joint venture between two complementary players will lead to significant efficiencies that will allow the new entity to accelerate investments in fibre (FTTH) and 5G for the benefit of Spanish customers.

The due diligence process conducted since March has confirmed potential synergies in excess of €450 million per annum achievable from the fourth year following the completion of the transaction.

The transaction is accompanied by a €6.6 billion non-recourse debt raising that will finance, among other things, a €5.85 billion upstream payment to the Orange Group and Masmovil shareholders. The distribution of these funds to the shareholders will be asymmetrical as it incorporates the principle of a balancing payment in favour of Orange in order to take into account the respective debt levels of the two companies prior to the transaction. This financing is mainly composed of bank debt, granted by a large group of banks. Masmovil's existing debt will remain in place. Upon completion of the transaction, the agreed financial policy between Orange and Masmovil will be to achieve a target net debt to EBITDA ratio of 3.5x in order to facilitate an IPO of the joint venture in the medium term.

The transaction will be subject to the approval of the relevant competition and administrative authorities and is expected to be completed no later than the second half of 2023. Until these approvals and the completion of the transaction, both companies will continue to operate independently.

Christel Heydemann, CEO of Orange, commented: "I am very pleased that these negotiations have come to fruition today. This agreement paves the way for the creation of a joint venture that will combine the strengths of Orange and Masmovil into a single player. This new operator will be stronger and able to invest in 5G and Fibre for the benefit of customers across Spain. I strongly believe that the creation of this new company is of fundamental importance for the Group, the Spanish telecom market and customers."

Meinrad Spenger, Managing Director of Masmovil, commented: "this is a great day for Spanish consumers as well as for all our stakeholders. Together with Orange, we plan to form a strong operator with a sustainable profile and the ability to invest in world-class infrastructure, technology and talent. We expect this to drive competition, digitalisation and innovation in the Spanish market."

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