France's Orange has reached a deal to buy Spanish fixed line telecommunications operator Jazztel in an effort to bolster its mobile operation the country and better compete with rivals Telefonica and Vodafone.
The French group made an offer for 100% of Jazztel shares at €13 per share in cash.
Orange estimated this is a 34% premium to Jazztel's average closing price in the last 30 days. The agreement values Jazztel at €3.4 billion.
It is subject to regulatory approval as well as to winning the backing of at least 50.01% of shareholders on top of the 14.5% of the shares that Leopoldo Fernandez Pujals, the company's main stakeholder, has already agreed to sell.
"We are doing this deal to accelerate our growth in Spain, particularly in fixed-mobile convergent offers," said Orange's chief executive Stephane Richard.
"The new company will be the incontestable number two in fixed services and third in mobile behind Vodafone, but we think we'll be able to take second-place pretty quickly," the CEO said.
Consolidation in the Spanish telecoms sector has been brewing for months, driven by tough competition and falling prices amid a deep recession.
When Vodafone, the second biggest mobile network operator in Spain, agreed to buy cable operator Ono in March for €7.2 billion, third largest mobile operator Orange found itself isolated without a fixed-line network.
Market leader Telefonica has increasingly pushed discounted bundles of fixed and mobile services to keep customers loyal.
Orange said it expects to save €1.3 billion by merging with Jazztel, mostly through network efficiencies.
The offer is also subject to Jazztel not pushing ahead with the potential acquisition of TeliaSonera's Yoigo. Last week, Jazztel, which uses the Orange network to provide its current mobile service, confirmed it was in talks about buying Yoigo, but discussions were preliminary and would not necessarily lead to an offer being made.
The French group said the deal would be financed through a combination of hybrid bonds and a capital increase of up to €2 billion.