Orange and MasMovil to Merge in Spain; We Remain Cautious Until Regulatory Approval Is Granted

No-moat Orange and MasMovil are confirming the recent reports in the Spanish press (Expansion), and announced they've started official discussions to merge their mobile and fixed businesses in Spain. The transaction would be done through a 50:50 joint venture with equal governance rights and a right to trigger an IPO. As we mentioned in our previous note, Orange’s business has been suffering in Spain since 2019 due to pressure from low-cost providers. MasMovil owns many low-cost brands like Yoigo and Pepephone, just the ones that have been harming Orange, so a merger would eliminate a lot of low-cost competition for Orange. It would also consolidate the Spanish market from four mobile network operators, or MNOs, to three, which normally results in more price stability. The deal values Orange’s Spanish business at 7.5 times EBITDA (after leases) and MasMovil at 9.9 times EBITDA, in line with other European peers. We maintain our EUR 13.40 fair value estimate for Orange, as Spain makes up less than 10% of the group’s EBITDA and the deal still needs approval from competition authorities.