BFM Business: Orange and Vodafone considered merger

Orange and Vodafone were involved in merger talks over a six-month period in the second half of last year, according to a report by BFM Business.

According to the report, citing an unnamed source, the pair considered a “marriage of equals” combining their global operations, but such a move was blocked by the French government, which has a 23% stake in Orange.

According to BFM Business, Orange CEO Stéphane Richard had an ambition to create a European telecoms leader with annual revenues of around €85 billion, surpassing Deutsche Telekom.

Vodafone and Orange are both pan-European players but with strengths in different markets. Orange is strong in France, Poland, Belgium and Romania, while Vodafone is a leading player in the UK, Germany, Italy and Hungary. The pair compete most directly in Spain, where Orange is the number two player and Vodafone is number three.

Orange and Vodafone also have complementary footprints in the hotly contested African market, where Orange is strong in Francophone countries and Vodafone is a major player in a number of Anglophone countries.

According to BFM Business, the pair also considered partial mergers, including the combination of their African assets.

According to the report, talks stumbled over where the combined company would be based, and the French government was in any case unwilling to countenance a possible move of the HQ to London, though it may have been open to a more neutral territory such as the Netherlands. The government was reportedly also concerned about CEO Richard’s forthcoming court case, which ultimately led to his conviction and imminent departure from the group.

According to analysts at Jefferies, commenting on the reports, a full merger could have created synergies of €14 billion or 20% of the combined equity value of the pair.

Jefferies said that the report “provides valuable context for [Vodafone’s] recent revival of consolidation in its narrative towards investors” but suggests that a merger of tower assets or the pair’s Spanish operations “would be politically less charged”.