Orange attempted a marriage with Vodafone

At the start of the year, the telecoms operator discussed a merger with its British competitor. But the state shareholder refused to go ahead.

The big regret of the CEO of Orange is called Vodafone. Just a year ago, Stéphane Richard attempted 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 of “marriage between equals was a prerequisite for it to be politically accepted”, adds another source.

The CEO of Orange saw in this merger the creation of a European leader in telecommunications with a turnover of 85 billion euros, surpassing the leader Deutsche Telekom. A project with Vodafone had the advantage of being highly 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 would have encountered competition problems, with Orange in second place and Vodafone third behind incumbent Telefonica. Together they could have created a single pan-European player present in most countries on the continent.

A giant in Africa

Another great asset, this alliance would have created an indisputable giant in Africa by consolidating their two very strong positions. Orange is the 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 arrangements. First, a global approximation of the two operators. But he ran into governance problems between French and English interests. And the IPO of the future group in London would have created heavy legal restrictions.

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

Governance issues

“The discussions went far enough that Orange could talk to the state about it,” suggests a source close to the group. But that’s where it all stopped… The state, a 23% shareholder in Orange, quickly stopped the project. “Vodafone did not want to let go of governance, explains a source close to Bercy. It was out of the question for Orange’s headquarters to go to London”. In reality, 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. The public authorities were also not in favor of launching Orange in a major operation just months before the verdict in the trial of Stéphane Richard in the Tapie case. “On paper, this project made sense, recognizes this source close to the state. Vodafone is the only one with whom Orange can do a merger of equals”.

Easier to ally in networks

This is the whole problem with Orange today. Because the valuation of Deutsche Telekom has exploded in recent years, driven by its American subsidiary T-Mobile. Its German counterpart weighs three times more heavily on 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 managers who do not approve of these large projects that Stéphane Richard has always wanted to carry out. Rather, they are campaigning for more sober infrastructure alliances by bringing together the thousands of relay antennas in their network. A subject that is all the more realistic as Vodafone has just listed its €15 billion Vantage Towers network subsidiary on the stock market! “We could do with Vodafone what Bouygues and SFR did by combining their relay antennas,” explains a source close to Orange. It is also said that the contacts between the two operators are continuing on this aspect…

Matthew Pechberty Journalist BFM Business

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