Orange Offers to Acquire Jazztel of Spain for $4.4 Billion

Jazztel Chairman Leopoldo Fernandez Pujals
Jazztel Chairman Leopoldo Fernandez Pujals said, “Men and women have different perspectives. That isn’t good or bad, it is just the way it is. So, in that sense, having women on a board that give opinions from the point of view of half of the consumers we have -- I see that as very positive.” Source: Jazztel Plc via Bloomberg

Orange SA offered to acquire Spanish broadband provider Jazztel Plc for about 3.4 billion euros ($4.4 billion) in cash, marking the French carrier’s biggest takeover attempt in almost a decade.

Orange is bidding 13 euros for each Jazztel share, or 22 percent more than the stock’s Sept. 12 close in Madrid, the companies said yesterday. The transaction is conditional upon Jazztel shareholders tendering at least half of the stock -- excluding an almost 15 percent stake held by Chairman Leopoldo Fernandez Pujals and executives who have agreed to sell.

Jazztel jumped as much as 6.6 percent. Orange is Spain’s third-largest wireless carrier, behind Telefonica SA and Vodafone Group Plc. Buying Jazztel would give Orange about 1.5 million broadband subscribers to help bolster offers of combined broadband, TV and wireless packages. The deal is the latest example of European land-line assets being snapped up. Vodafone completed the takeover of Spanish cable provider Grupo Corporativo ONO in July. Yesterday, TDC A/S of Denmark agreed to acquire Norwegian cable company Get AS.

Bloomberg News reported in February that Orange had intensified its search for acquisition targets in Spain -- including Jazztel -- to avoid being left out of potential consolidation in the country’s telecommunications market.

‘Right Time’

“Orange and Jazztel together, that’s the combination of two success stories in Spain,” Orange Chief Executive Officer Stephane Richard said during a conference call. “With the economy recovering, it’s the right time to reinforce our presence.”

Orange plans to finance the bid with a capital increase of no more than 2 billion euros, and a sale of hybrid bonds. The combination will generate additional revenue and cost savings amounting to 1.3 billion euros, Richard said.

Including the synergies, Orange said it’s paying 8.6 times the target’s projected 2015 earnings before interest, taxes, depreciation and amortization.

On a separate conference call, Chief Financial Officer Ramon Fernandez said Orange plans to complete the transaction in the first half of 2015.

Jazztel traded 6.2 percent higher at 12.79 euros as of 9:04 a.m. in Madrid. The shares were suspended yesterday after rising as much as 17 percent. Orange fell 1.1 percent to 11.33 euros in Paris, extending yesterday’s decline after Bloomberg News reported that a transaction was imminent.

Yoigo Talks

Jazztel has expanded in Spain over the years by offering low-cost broadband Internet and phone service and eventually wireless plans to win over customers from Telefonica. The company has boosted revenue every quarter since 2008. This year, sales may reach 1.2 billion euros, quadrupling from 2007, according to data compiled by Bloomberg. Jazztel posted its first annual profit in 2010.

Chairman Pujals is Jazztel’s biggest shareholder with a 14.5 percent stake, after initially acquiring a 25 percent holding in 2004, according to data published by regulators and disclosed on Jazztel’s website.

Jazztel aims to have 2 million broadband clients by 2017, according to a a 2013-2017 business plan it presented last year.

Jazztel, which last week said it’s in talks with TeliaSonera AB over a possible offer for its Spanish wireless unit Yoigo SA, has put the acquisition plan on hold, according to Orange. Orange also said it doesn’t plan to bid for Yoigo.

Amena Purchase

The last time Orange made a purchase that topped $4 billion was in 2005, when it agreed to take control of Spanish mobile carrier Amena SA for 6.4 billion euros, data compiled by Bloomberg show.

Orange already offers bundled phone, Internet and TV packages in France and has said the strategy helped it retain customers in the face of cheaper offers, led by Iliad SA’s mobile service under its Free brand.

Orange CEO Richard has been saying for about a year that he’ll consider deals to help him consolidate business in Spain. Targets had so far been deemed too expensive by the French carrier, standing in the way of a transaction, people familiar with the matter have said.

Bank of America Corp. and Banco Santander SA advised Orange while Jones Day and Norton Rose Fulbright provided legal assistance. Linklaters was Jazztel's legal adviser.

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