Deutsche Telekom Examines Possible Merger With Orange

Deutsche Telekom is examining a possible tie-up with French peer Orange, German business daily Handelsblatt reported on Wednesday, citing managers close to the matter.

A spokesman for Orange said “there are no ideas or discussions going on” regarding such an initiative.

Deutsche Telekom declined to comment.

Orange and Deutsche Telekom have been talking on and off for years, although merger discussions in 2017 fizzled out because it was not feasible to put the companies on an equal footing, a source told Reuters here last year.

Handelsblatt said Deutsche Telekom was assessing the potential of a tie-up with Orange, adding that the two companies had cooperated on purchases in the past eight years.

Deutsche Telekom’s shares were up 1.5% at 1446 GMT to make them the biggest gainer on the German blue-chip index. Orange’s shares initially rose 1.4% after the report but slipped back into negative territory after the French firm’s denial.

The German and French governments own sizeable stakes in the respective companies, making any deal politically charged. The size of Deutsche Telekom means a deal would likely mean a takeover of Orange, potentially hard for Paris to swallow.

Deutsche Telekom is Europe’s biggest telecommunications company with a market capitalization of about 72 billion euros ($79 billion), according to Refinitiv data. Paris-listed Orange is worth about 40 billion euros.

“We believe the likelihood of such a merger is very minor,” said analysts from Jefferies, citing hurdles that included likely political opposition, the German firm’s larger size and limited cross-border synergies.

Europe’s telecoms industry is highly fragmented compared with the U.S. market, hampering efforts to increase investment despite competition from internet firms, such as Amazon.―Reuters