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Orange to Divest Dominican Asset

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Orange (ORAN - Free Report) , formerly known as France Telecom, is considering the sale of its operations in the Dominican Republic. The Central American asset sale could bring home $1.2 billion (€900 million), which could be utilized to repay debt.

Orange, which provides mobile and Internet services in the Dominican Republic, is currently consulting several banks over the asset sale. Orange expects to attract bids from some Latin American players like Millicom, Digicel and Cable & Wireless Communications along with other private equity firms in the U.S. and Latin America.  

Orange Dominica is the second largest telecom carrier in Central America and controls a commendable 38.4% market share. The company earned $601.0 million (€451 million) in revenues and reported a healthy subscriber growth of 5.4%.

However, Claro, owned by America Movil S.A.B de C.V. (AMX - Free Report) , is the largest service provider in the Dominican Republic and controls more than half of the market. It is quite obvious that Claro will not get the regulatory approval to acquire Orange Dominica, as it will make the former a dominant player with a market share of almost 90%.

On the contrary, smaller operators like Viva and Tricom, which together share 10.4% of the market, could be potential bidders for Orange Dominica. The acquisition would be an opportunity to increase their market share via an inorganic route.

Like several big telecom carriers, Orange has been struggling in Europe due to the lingering macroeconomic instability. Orange reported weak financial results for the first quarter of 2013. The company earned €10.28 billion ($14.16 billion), marking an annualized drop of 4.1%. Nevertheless, a $52.3 billion (€39.2 billion) debt remains the primary concern for Orange.

A mobile penetration of 86.9% does not present Dominican Republic much of a long-term opportunity for Orange. We believe that the sale of the Dominican arm is an attempt by the company to reduce its debt burden and concentrate on the emerging nations of Africa.

Orange currently carries a Zacks Rank #3 (Hold). Other stocks to consider in the European telecom industry are Fairpoint Communications Inc. and Turkcell Illetisim Hizmetleri AS (TKC - Free Report) . Both the stocks currently carry a Zacks Rank #2 (Buy).

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