Two of Europe’s biggest telecom firms Orange and Masmovil have entered into exclusive talks to combine their businesses in Spain.
The new entity would take the form of a 50-50 joint venture with a combined enterprise value of €19.6bn, the two companies said in a statement.
The combined power of France’s Orange and Spain’s Masmovil is likely to face heavy European competition hurdles: a merger of the two would bring together the second and fourth largest players in the continent.
Crucially, it also throws the future of British firm Vodafone into question after its share price has already taken a battering in recent weeks.
City AM reported yesterday that it was in fact the most shorted stock in Europe.
Paolo Pescatore, Tech, Media & Telco Analyst for PP Foresight, told City AM: “ This is a major blow to Vodafone’s aspirations in Spain. Rivalry remains intense and scale is paramount.”
He said that the joint venture seemed a “logical move”, and one that would help satisfy regulator concerns.
Nonetheless, Pescatore added: “It potentially leaves Vodafone in limbo as the new entity will become a far stronger rival to the incumbent, Telefonica.”
CCS Insight analyst Kester Mann echoed this point, but also said: “Vodafone may also consider that any move to reduce the number of players – even if involving other operators – is a positive development.”
Jefferies analysts said that whilst consolidation is good for the likes of Telefonica, which currently holds the top spot in Europe, the French-Spanish entity would leave Vodafone way behind in its third spot, removing its prospective exit route of a disposal to MasMovil.
The main argument for consolidation is that mergers will allow firms to pool sources to invest in 5G rollout and more efficient work streams.
Having said this, Vodafone chief Nick Read has himself called for market consolidation in telecoms to reduce competition and boost profitability for firms. So, whilst the immediate impact of its two closest competitors coming together would be detrimental, the overall trend is a positive one.
Vodafone shares were down over three per cent this afternoon.