Orange tried a marriage with Vodafone

Earlier this year, the telecom operator discussed a merger with its UK competitor. But the state shareholder refused to go further.

The great regret of the CEO of Orange is called Vodafone. Just a year ago, Stéphane Richard tried another marriage with a competitor in order to create a European giant. According to several close sources, there have been discussions between Orange and British Vodafone with a view to a merger between equals. They were carried out “at the highest level”, explains a source. They lasted more than six months, between the summer of 2020 and the beginning of 2021. At the time, talks were facilitated by valuations close to around 30 billion euros each. A project with “marriage between equals was a prerequisite for it to be politically accepted”, adds another source.

In this merger, the CEO of Orange saw the creation of a European leader in telecommunications with a turnover of 85 billion euros, surpassing the leading Deutsche Telekom. A project with Vodafone had the advantage that it was very complementary in terms of geographical locations. It is among the leaders in the UK, Germany, Italy and Hungary. Orange, on the other hand, is strong in France, Belgium, Poland and Romania. Spain is the only country where the two operators have encountered competition problems, while Orange is number two and Vodafone in third place, after the incumbent operator Telefonica. Together, they could have created a single pan-European player present in most countries on the continent.

A giant in Africa

Another major asset, this alliance, would have created an indisputable giant in Africa by consolidating their two very strong positions. Orange is a leader in 18 French-speaking African countries (Senegal, Ivory Coast, Cameroon, etc.) and Vodafone in eight English-speaking countries such as South Africa and Kenya.

Discussions continued for several months as the two groups worked on several capital schemes. First, a global approximation of the two operators. But he ran into governance issues between French and English interests. And the listing of the future London corporation would have created heavy legal restrictions.

To avoid these pitfalls, Orange and Vodafone have also studied “engagement” rather than marriage, which consists of merging their subsidiaries of telecom operators in Africa. This “minimum” option would at least have made it possible to lay the groundwork for a greater approximation to later. It would also have paved the way for a listing of this new African telecom giant, which would have benefited the Orange stock, which has suffered since the covid crisis.

Governance issues

“The discussions went far enough for Orange to talk to the state about it,” suggests a source close to the group. But that was where it all stopped … The state, a 23% shareholder in Orange, quickly stopped the project. “Vodafone did not want to let go of government, explains a source close to Bercy. It was out of the question for Orange’s headquarters to go to London.” In fact, the state seemed ready to study the idea of ​​a seat in a neutral country like the Netherlands.

A textbook case that already exists for Airbus and Stellantis, two groups in which the state is also a shareholder. Public authorities were also not in favor of launching Orange into a major operation a few months before the verdict in the trial of Stéphane Richard in the Tapie case. “On paper, this project made sense, recognizing this source close to the state. Vodafone is the only one with whom Orange can make a merger between peers.”

Easier to ally with networks

This is the whole problem with Orange today. Because the valuation of Deutsche Telekom has exploded in recent years, operated by its US subsidiary T-Mobile. Its German counterpart weighs three times heavier in the stock market. The CEO of Orange had also tried several times, between 2014 and 2016, to marry the German operator, as the two groups showed similar values.

Internally, there are many Orange executives who do not approve of these big projects that Stéphane Richard has always wanted to carry out. Rather, they campaign for more sober alliances in infrastructure by gathering the thousands of relay antennas in their networks. An issue that is all the more realistic as Vodafone has just listed its Vantage Towers network subsidiary, which is worth 15 billion euros! “We could do with Vodafone what Bouygues and SFR did by combining their relay antennas,” explains a source close to Orange. It is also reported that contacts between the two operators continue on this aspect …

Matthew Pechberty Journalist BFM Business

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