Orange and TDC’s Sunrise to merge in Switzerland

France Telecom and Denmark’s TDC are to merge their Swiss mobile networks - Orange Switzerland and Sunrise, respectively - to create a powerful rival to the market leader, Swisscom. France Telecom said it will pay a closing net amount of EUR1.5 billion to TDC to become a 75 percent shareholder in the combined entity, while TDC will hold the remaining 25 percent. According to France Telecom’s own figures, the new firm will become an operator with approximately 3.4 million mobile and 1.1 million fixed and broadband customers, accounting for a 38 percent share of the Swiss mobile market and 13 percent of the country’s fixed broadband connections. For 2008, the combined entity would have generated total pro-forma revenues of CHF 3.1 billion (EUR2.0 billion) and EBITDA of CHF809 million (EUR534 million). “The planned merger of Sunrise and Orange Switzerland marks a new significant step in the long-term investment by France Telecom-Orange in Switzerland,” said Gervais Pellissier, France Telecom’s deputy CEO and CFO. “Following the UK joint venture between Orange and T-Mobile, France Telecom completes another major in-market consolidation, consistent with its M&A policy.”

The merger of the two networks is expected to generate synergies to the tune of EUR2.1 billion. Estimated Opex-based savings, arising from Network & IT, distribution, marketing and workforce optimisation, are expected to reach an annual run-rate of EUR132 million, with cumulative integration costs estimated at EUR92 million. Capex synergies of EUR376 million are expected between 2010 and 2015 (net of integration Capex) and a run-rate Capex savings of EUR43 million per annum from 2015. The deal is expected to close in February 2010 following due diligence. TDC will have the right to sell its stake to third-parties from the second anniversary of closing or to IPO its stake from the third anniversary. France Telecom will have an option to buy TDC’s shares from the first anniversary of closing at a minimum value of EUR1.2 billion. According to Wireless Intelligence data, Swisscom dominates the Swiss mobile market with an estimated 62 percent market share (5.5 million connections) in 3Q09. Sunrise is currently second on 1.9 million (a 21 percent market share) and Orange is third on 1.6 million (18 percent).