September 15, 2014 / 4:30 PM / in 4 years

Orange strikes 3.4 billion euro deal to buy Spain's Jazztel

PARIS/MADRID (Reuters) - France’s Orange SA (ORAN.PA) said on Monday it reached a deal to buy Spanish fixed line telecommunications operator Jazztel Plc JAZ.MC in an effort to bolster its mobile operation the country and better compete with rivals Telefonica and Vodafone.

The logo of French telecom operator Orange is seen during the company's 2013 annual results presentation in Paris March 6, 2014. REUTERS/Jacky Naegelen

The French group made an offer for 100 percent of Jazztel shares at 13 euros per share in cash, which Orange estimated was a 34 percent premium to Jazztel’s average closing price in the last 30 days.

The agreement, which values Jazztel at 3.4 billion euros, is subject to regulatory approval as well as to winning the backing of at least 50.01 percent of shareholders on top of the 14.5 percent of the shares that Leopoldo Fernandez Pujals, the company’s main stakeholder, has already agreed to sell.

“We are doing this deal to accelerate our growth in Spain, particularly in fixed-mobile convergent offers,” said Orange Chief Executive Stephane Richard.

“The new company will be the incontestable number two in fixed services and third in mobile behind Vodafone, but we think we’ll be able to take second-place pretty quickly.”

Consolidation in the Spanish telecoms sector has been brewing for months, driven by tough competition and falling prices amid a deep recession.

When Vodafone Group Plc (VOD.L), the second biggest mobile network operator in Spain, agreed to buy cable operator Ono in March for 7.2 billion euros, third largest mobile operator Orange found itself isolated without a fixed-line network.

Market leader Telefonica SA (TEF.MC) has increasingly pushed discounted bundles of fixed and mobile services to keep customers loyal.

Orange expects to save 1.3 billion euros by merging with Jazztel, mostly through network efficiencies.

The offer is also subject to Jazztel not pushing ahead with the potential acquisition of TeliaSonera AB’s TLSN.ST Yoigo.

Last week, Jazztel, which uses the Orange network to provide its current mobile service, confirmed it was in talks about buying Yoigo, but discussions were preliminary and would not necessarily lead to an offer being made.

The French group said the deal would be financed through a combination of hybrid bonds and a capital increase of up to 2 billion euros. Orange pledges to stick to a target for net debt of no more than 2 times operating profit by the end of the year.

Moody’s and Fitch credit rating agencies put Orange on negative outlook in January over concerns about falling profitability in its home market of France.

Jazztel shares rose 12 percent before being suspended by Spain’s market regulator earlier on Monday, giving the group a market value of 3.09 billion euros ($4 billion) at the close.

Orange shares fell 2 percent to close at 11.46 euros.

Writing by Leila Abboud; Editing by James Regan, Greg Mahlich and Andre Grenon

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