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Austria
03/22/2012

Orange-Drei: Banks Fear Loss of Millions

If the acquisition of „Orange“ by „Drei“ is not successful, Orange may fail. Lending banks are already nervous and afraid of losses on loans. As one of the biggest obstacles to this deal is said to be the sale of YESS! to A1, A1 (Telekom) will benefit most from the Orange/Drei deal, a new survey reports.

For Austria´s third-largest network operator, Orange, not only are mobiles ringing but also alarm bells, as the carrier cannot fulfill substantial credit conditions any more. Though this does not concern current payments to about sixty banks, the owners France Télécom and Mid Europa Partners are committed to the credit grantors in the course of the buyout in 2007 and to come up to certain performances. With this internationally established practice, banks can be warned in time of possible shortfalls in payment.

Time-out for back-payment
In practice, the profits of Orange before interest payments, taxes and write-offs (EBITDA) are lower than expected. Therefore the provider has recently agreed with the banks that it does not have to meet these requirements during the course of the selling process to Drei. If the deal fails, the situation for Orange could become dangerous.

Loan giving banks have already become nervous, and not without reason, as debts have added up to € 1.25 billion. The operators hope to have completed the sale by June 2012, in the worst case it would be November. Until then Orange does not have to meet the precarious credit requirements. If the national antitrust authority forbids the deal, Drei and Orange would go on fighting their cause with the EU authorities but this costs time which Orange perhaps would not have then.

Yesss-Deal faces opposition
The antitrust authorities in Vienna and Brussels feel irritated, especially by the already agreed sale of the bargain brand "Yesss!" including 750.000 customers to the market leader Telekom Austria (TA). Thus the market share of TA would increase from 42 to 47 percent. Morgan Stanley, who also have analyzed the aftermath of the intended take over of Orange by Hutchison, also states that TA with its mobile daughter Mobilkom would benefit most.

Analysts expect the goodwill of TA would increase by about one euro per share. The reason being that there is little pressure from the competition although after the purchase of Orange by Drei in the coming months the race for customers through low tariffs would increase. But in the medium term all three providers – according to Morgan Stanley – could increase their prices and reduce costs for customer loyalty programmes, e.g. gratis mobiles devices.

The higher tariffs, as a consequence, would cause higher average turnover per customer and lead to higher profits.

T-Mobile not interested
The sale of Yesss! to the second largest mobile provider T-Mobile – a deal which Drei would appreciate – is not going to happen because of T-Mobile. The Austrian subsidiary of Germany`s telecom giant simply doesn`t get money for that purpose from its parent company.

Orange`s banks have three options by the end of the year: To raise the interest rates or ask the owner for an injection of capital (according to well informed sources, € 20 million) or in the worst case to demand the immediate repayment of all the loans which could mean the end of Orange.

Orange`s only comment was "That`s a matter for our owners".