Orange in Merger Talks with Bouygues - Analyst Blog

French telecom incumbent Orange ORAN is reportedly in talks with Bouygues Telecom over a possible merger that will subsequently bring down the total number of operators within the country from four to three. However, Orange might face significant antitrust hurdles in its attempt to buy the third largest wireless carrier in France.

Per the deal, Orange will pay €6.0 billion ($8.2 billion) for Bouygues Telecom, while its parent company Bouygues and majority shareholder JCDecaux could end up with a 10% stake in Orange by selling in return for shares.

Notably, the telecom space in France recently saw a consolidation after Vivendi's SFR was acquired by Altice. Bouygues Telecom ended up losing the battle to Altice after five rounds of aggressive bidding for the second largest mobile carrier, SFR. Although Bouygues Telecom was trying to consolidate, it also became a potential target for Iliad, which made an offer of €4.0 to €5.0 billion ($5.6 to $6.8 billion) for the former.

If Orange finally succeeds in acquiring Bouygues Telecom, the French behemoth will be able to add 11.064 million subscribers to its already impressive base of 239.4 million subscribers.  

The French telecom market saw a vicious price war after lliad's Free Mobile service came up with a competitive tariff offering. The deal, if finalized, will see the integration of Orange's low-cost brand Sosh with Bouygues Telecom's B&YOU, thus strengthening the combined entity's position against Iliad.

However, Bouygues Telecom needs to restructure its business as it continues to grapple under a stiff competitive scenario within the domestic market. Meanwhile, Orange recently declared disappointing first quarter results with both revenues and EBITDA registering a 3.8% drop, owing to revenue declines in most of the markets.

Orange currently carries a Zacks Rank #4 (Sell). Other stocks worth considering within this sector are Level 3 Communications Inc. LVLT, Nippon Telegraph and Telephone Corp. NTT and KT Corp. KT. Level 3 currently sports a Zacks Rank #1 (Strong Buy), while Nippon and KT Corp carry a Zacks Rank #2 (Buy).

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