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Fitch: Jazztel Deal Would Support Orange's Credit Profile
September 18, 2014 / 9:31 AM / 3 years ago

Fitch: Jazztel Deal Would Support Orange's Credit Profile

(The following statement was released by the rating agency) LONDON, September 18 (Fitch) Orange's proposed acquisition of Spain's Jazztel would mildly strengthen the mobile group's credit profile by improving its operational position in Spain without affecting leverage, Fitch Ratings says. But any benefit would not lead to a revision of the Negative Outlook on the group's 'BBB+' rating, which reflects falling prices at Orange's French operations due to competition. The acquisition would strengthen Orange's business through economies of scale in the broadband market and the vertical integration of Jazztel's MVNO, which is hosted on Orange Spain's mobile network. The deal also has defensive qualities as Jazztel was in talks to acquire Yoigo, the fourth mobile operator in Spain. This would have created a stronger competitor with the added risk of losing Jazztel as a wholesale customer if it switched the network supplier for its MVNO to Yoigo. Orange quantifies the run rate synergies of the transaction at EUR160m a year after integration. Orange intends to finance the acquisition of broadband and mobile virtual network operator Jazztel through a combination of hybrid securities and up to EUR2bn of new equity. This would enable Orange to maintain existing leverage levels - assuming the hybrids qualified for 50% equity credit under our methodology - while improving operational EBITDA by about EUR200m before synergies. The exact mix of financing will depend on market conditions and the number of Jazztel shares tendered. The offer, which has an enterprise value of EUR3.8bn, requires only 50% of the shares to be tendered, excluding those subject to an irrevocable tender agreement. This relatively low acceptance hurdle and Jazztel Chairman Leopoldo Fernandez Pujals' commitment to sell his 14.5% increases the chances that the acquisition will go through as planned. Orange Spain accounts for around 8% of total group EBITDA. The acquisition of Jazztel will increase this to close to 10%, including the impact of run rate synergies. This would provide some positive diversification in cash flows, but Spanish operations will remain a fraction of the French business, which accounts for over 56% of group EBITDA. Contact: Tajesh Tailor Director Corporates +44 20 3530 1726 Fitch Ratings Limited 30 North Colonnade London E14 5GN Damien Chew Senior Director Corporates +44 20 3530 1424 Simon Kennedy Director Fitch Wire +44 20 3530 1387 Media Relations: Peter Fitzpatrick, London, Tel: +44 20 3530 1103, Email: peter.fitzpatrick@fitchratings.com. The above article originally appeared as a post on the Fitch Wire credit market commentary page. The original article can be accessed at www.fitchratings.com. All opinions expressed are those of Fitch Ratings. ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

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