Orange CEO Interested in Combination With Telecom Italia

Orange SA Chief Executive Officer Stephane Richard said France’s largest phone company is interested in a potential combination with Telecom Italia SpA.

A deal with Telecom Italia could be “a great opportunity for European consolidation,” Richard said in an article published by Journal du Dimanche on Sunday. There were exchanges of views between the companies while no negotiations are underway, he said. An Orange representative in Paris confirmed the remarks, while a Telecom Italia spokesman said there are neither talks nor an “exchange of views.”

Should Orange’s deliberations turn into a formal approach, a merger of the two former national phone monopolies -- with a combined market value of more than 60 billion euros ($67 billion) -- would face multiple hurdles. Milan-based Telecom Italia, the smaller of the two carriers, has almost 27 billion euros in net debt and is rated junk. Italy’s government considers telecommunications assets strategic to the country’s interest and Orange’s largest shareholder is the French state.

Still, Richard’s comments reflect a wave of consolidation that has swept Europe’s telecommunications industry. British phone company BT Group Plc last month agreed to buy the U.K.’s largest wireless carrier EE, which is half owned by Orange, for about $19 billion. In France, billionaire Patrick Drahi recently completed the 17 billion-euro takeover of SFR to create Numericable-SFR.

Complementary Deal?

Telecom Italia rose 2 percent to 1.09 euros at 9:17 a.m. in Milan, giving it a market value of almost 20 billion euros. Orange added 0.5 percent to 16.39 euros for a market capitalization of 43.4 billion euros.

“On paper the two groups are complementary,” said Jean-Michel Salvador, an analyst at AlphaValue in Paris. With the sale of EE, Orange will have less debt, and a merger with Telecom Italia would end up with net debt of 50 billion euros, or about 2.4 times earnings, Salvador estimated.

Mergers and acquisitions are among topics that will probably be discussed as telecommunications executives arrive in Barcelona for the annual Mobile World Congress this week.

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