France's Orange Makes $4.4 Billion Bid for Spain's Jazztel

French group Orange launched Tueday a bid to extend its reach in a Europe-wide telecom turf war with an offer for Spanish fixed-line operator Jazztel.

Orange, formerly known as France Telecom, announced late on Monday the offer worth a total of 3.4 billion euros ($4.4 billion) when stock options held by some Jazztel managers are included.

The offer, which will be formally presented to Jazztel shareholders later on Tuesday, offers 13 euros per share, 34 percent above the average closing price of the last 30 trading days.

Shares in the company, which had been rising sharply since the end of last week, gained 6 percent on Tuesday to trade at 12.77 euros.

The deal is subject to regulatory approval as well as to winning the backing of at least 50.01 percent of shareholders.

If successful, it would create Spain's second-biggest fixed broadband carrier and third-biggest mobile network operator.

Buying Jazztel would give Orange about 1.5 million broadband subscribers to help bolster offers of combined broadband, TV and wireless packages.

"We are doing this deal to accelerate our growth in Spain, particularly in fixed-mobile convergent offers," Orange Chief Executive Stephane Richard said in a statement.

'Consolidation to keep advancing'

Consolidation of the crowded and deeply fragmented European telecom market has intensified over the past year as small players have fallen prey to bigger rivals, reducing the number of operators in each market.

Analysts say a reduction in the number of large operators could help boost profit margins in the industry after years of fierce competition during an economic downturn.

In April, European cable group Altice won a bidding contest for France's second-biggest telecom operator SFR, beating a government-backed offer from Bouygues by agreeing to a deal valued at over 17 billion euros.

Earlier this year, Vodafone in Spain purchased Ono, a midsized cable operator for 7.2 billion euros.

The European Commission gave that acquisition the green light in July, judging that Vodafone's mobile telecoms activities were largely complementary to Ono's fixed-line services.

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The commission also paved the way that month for the creation of Germany's biggest mobile company when it cleared the acquisition of E-plus in Germany, a unit of Dutch KPN, by Spain's Telefonica.

The cash and stock deal, estimated at 8.5 billion euros, merges Germany's third and fourth-biggest operators, leaving only Deutsche Telekom and Vodafone as similar-sized rivals.

Spanish Industry Ministry Jose Manuel Soria welcomed the trend.

"It should go further. I think this process of consolidation has to keep advancing, not only in Spain but also in Europe," he said during an interview with Spanish public radio.

Asked if the trend would lead to lower consumer prices, he said: "I can't say for certain, but if the process of consolidation works as it should, that should happen."

Orange expects to save 1.3 billion euros by merging with Jazztel, mostly through network efficiencies.

The company said Jazztel's chairman Leopoldo Fernandez Pujals, who owns a 14.5-percent stake in the company, would accept its offer.

Spain is Orange's second-biggest market, accounting for about 10 percent of the group's revenue.

The deal would "solidify" Orange's position as Spain's second-largest broadband operator, said IHS telecoms analyst James Allison.

"The acquisition is in part a response to Vodaphone's increased scale in Spain with its acquisition of cable operator Ono," he added.

Jazztel has 11.8 percent of the Spanish broadband market and 2.3 percent of the mobile-phone segment, according to data from Spain's telecom watchdog, CNMC.

A takeover would give Orange 26.2 percent of the broadband segment, compared with Vodafone's 21 percent share.

Orange would have 25.1 percent of the mobile market, behind Vodafone's 26.7 percent.

Former state monopoly Telefonica controls a third of the market in both segments.