A merger between the two companies would produce one of the country's biggest mobile operators.
Orange is set to continue its acquisition spree in Africa with a $160 million takeover of Millicom's Tigo-branded mobile phone business in the Democratic Republic of Congo.
The combination of the two companies, which is subject to regulatory approval, would create one of the DRC's biggest mobile operators, serving around 11.1 million customers, or about 28% of the entire market, according to company data.
That would put it just behind market leaders Vodafone and Bharti Airtel, according to Tracy Kivunyu, a research analyst with African Alliance Kenyan Investment Bank, but ahead of Africell, which serves just 15% of the local market.
Orange (NYSE: FTE) has made expansion in Africa a focus of its growth strategy and last year unveiled plans to increase revenues across its African and Middle Eastern markets by 20% between 2014 and 2018. (See Orange Aims for 20% Sales Growth in Africa.)
The move for the Tigo DRC business comes just weeks after the French telecom incumbent said it would acquire mobile operations in Burkina Faso and Sierra Leone from India's Bharti Airtel Ltd. (Mumbai: BHARTIARTL), as well as a network in Liberia from privately held Cellcom Telecommunications. (See Orange Buys Airtel Ops in Burkina Faso, Sierra Leone and Orange Expands in Africa With Cellcom Liberia Acquisition.)
Orange believes it can realize various sales and cost synergies from bulking up across West and Central Africa: It has already outlined plans to monitor networks across a number of markets in the region from facilities in Abidjan (Côte d'Ivoire) and Dakar (Senegal). (See Orange Lauds Attractions of Airtel Africa Deal.)
Many of these countries also look attractive because their telecom markets are still far less developed than in other parts of the continent.
The DRC, for example, has about 40 million mobile subscribers, according to Orange, but is home to around 75 million people overall, according to the World Bank.
In a statement, Orange said the Millicom International Cellular SA (Nasdaq: MICC) business was a "perfect fit" for Orange from a geographical and cultural perspective and that a merger would allow it to become one of the leading mobile operators in the country.
Orange currently controls about 13% of the DRC market, according to figures for the July-to-September quarter, while Millicom's customer data suggests it has a market share of around 15%.
Before announcing its takeovers in Burkina Faso and Sierra Leone, Orange had been in talks with Bharti Airtel about acquiring a number of African assets, and it seems likely to have looked at the Indian operator's DRC business. (See Orange in Talks to Buy Africa Ops From Airtel and Bharti Airtel: Out of Africa?.)
Any deal, however, would have created a giant in control of about 38% of the country's mobile market, which could have been a troubling development for regulatory authorities if the companies had announced merger plans.
Bharti Airtel may also have been unwilling to quit such a big market, especially given its leading role in the country.
"Airtel would have been a better acquisition, but I suppose it was a matter of lack of interest from Airtel," says Kivunyu.
Orange's statement suggests Tigo DRC is also a better fit than Bharti Airtel would have been, and the local operation has recently been thriving.
In the recent July-to-September quarter, it added 443,000 mobile customers -- accounting for 57% of Millicom's overall customer growth in Africa (where it operates in six markets) -- and its subscriber base grew by around 1 million in the year to September 2015, giving it more than 5.8 million customers in total.
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Millicom said the sale would allow it to concentrate resources in other markets and strengthen its balance sheet, which showed a net debt of about $4.3 billion in September, or about 1.88 times its EBITDA over the preceding 12 months.
"The sale of Tigo DRC is in line with our strategy of supporting consolidation and concentrating our resources in our most promising markets," said Mauricio Ramos, Millicom's CEO, in a company statement. "Proceeds from the sale will strengthen our balance sheet allowing us to reinvest in our existing Latin American and African markets, improving earnings and cash flow and reducing leverage."
Orange generated revenues of €40 million ($45 million) in the DRC in the July-to September quarter, just a fraction of the €1.3 billion ($1.45 billion) it made across the whole of Africa and the Middle East.
Group revenues were €10.3 billion ($11.5 billion) in the same period.
— Iain Morris, , News Editor, Light Reading
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