Thursday, 12 June 2014

A German Orange

Does anybody else find it a bit odd that today's media coverage of the failed merger talks between Orange and Bouygues Telecom pretty much all fail to mention the bigger industry tale that has been rattling around European markets all week - the talk of a EURO 90 billion merger between Deutsche Telekom and Orange.

I know this one has been knocking around for the last few days and a bit of an 'old chestnut' of a deal story. But this time I think there may be something in it, so it's worthwhile a mention on Betaville this morning.

Indeed, Gary Parkinson, the market reporter over at the The Times, tweeted on Monday he had been hearing rumours Deutsche Telekom is preparing a takeover bid for France's Orange. And on Tuesday Bryce Elder and Paul Murphy over FT Alphaville said on their execellent Markets Live show they have heard similar things but people close the situation have been playing the gossip down.

Well, I hear that several investment banks have lined up on either side of this potential EURO 90 billion combination, adding credence to the scuttlebutt.

Deutsche Bank, Bank of America Merrill Lynch and Citigroup are said to be working with Deutsche Telekom on the possible merger. Orange is believed to be working with Credit Suisse, Lazard and Credit Agricole.

Rothschild is likely to advise the French government, which owns 27pc of Orange, on any merger deal although the venerable corporate adviser was mandated to work with Bouygues Telecom on its EURO 6 billion sale talks to Orange, whose shares fell yesterday about 4pc.

Anyway, that's the extra detail I have managed to glean from my sources. The idea of Deutsche Telekom and Orange combining has been around for several years (the two companies have already merged their British businesses into EE) but my sources tell me things are now "hotting up".

In part, this is because Deutsche Telekom is close to securing a deal to sell its 67pc stake in T-Mobile USA to Sprint, which is controlled by Japan's Softbank. Here is a link to last week's report on the matter:

Some of my sources reckon Deutsche Telekom will secure an upfront cash break fee payment of over EURO 1 billion from Sprint as it will take a long time for the US regulators to clear the sale.

Any deal between Deutsche Telekom and Orange is likely to see the German company pay for the French business using its own stock and a little bit of cash, claimed one source.

Bankers also tell me there is a political will to see both Deutsche Telekom and Orange come together to create a European telecoms champion that will be able to compete on a global stage. The German government owns 14.5pc of Deutsche Telekom and France has a 27pc stake in Orange.

I have to admit, though, I don't know whether this deal is just a glint in Deutsche Telekom's eye or whether talks - albeit informal, early or late stage - are "live". Market participants can make their own mind up what price Deutsche Telekom will/would have to pay for Orange

Deutsche Telekom and Orange both declined to comment although people close to the latter said there is "no project" being worked on.

Au revoir!

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