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Orange (ORAN) Closes TKR Buyout to Aid Europe Convergence Plan

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Orange S.A. (ORAN - Free Report) recently completed the acquisition of a majority stake in Telekom Romania Communications (TKR) for a total purchase price of €268 million on a debt-free, cash-free basis. The transaction for a 54% controlling stake in one of Romania’s leading fixed telecom operators is aimed to realize Orange’s convergence goals in Europe, as it intends to scale up operations in the continent to better serve customers.

With revenues of €633 million in 2020, TKR is reportedly the second-largest fixed telecom operator in Romania, offering fixed voice, broadband and Pay-TV services to around five million customers. In addition, it boasts a fiber network spanning 90,000 km that connects about three million households, while providing convergent services to more than 916,000 fixed-mobile convergent subscribers through an MVNO (mobile virtual network operator) contract with Telekom Romania Mobile. The MVNO agreement enables TKR to offer wireless mobile services using the communications network infrastructure of Telekom Romania Mobile without actually owing it.

The acquisition enables Orange to leapfrog competition and establish itself as the de-facto leader in the country with an integrated portfolio of fixed and wireless services. TKR customers will be gradually migrated to Orange’s network over the due course of time, providing seamless services and uninterrupted connectivity. With complementary product offerings, the buyout will help to accelerate its convergence strategy in Europe, bringing broader benefits and wider choices to customers for the sustainable development of a digital economy in Romania. The companies, however, will continue to operate as two separate legal entities

Headquartered in Paris, Orange is one of the world’s leading telecommunications carriers with a turnover of €42.3 billion in 2020. Operating in 26 countries, the company had a total customer base of 263 million at the end of June 2021. This includes 218 million mobile customers and 22 million fixed broadband customers. With TKR subscribers under its fold, the figure is likely to improve significantly, reaping synergistic benefits for the company in the long run.

It remains to be seen how Orange carries this growth momentum and whether the accretive subscriber base can actually help it generate profitable revenues in the days to come.

The stock has lost 9.1% year to date compared with 5.7% decline of the industry.

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Orange currently carries a Zacks Rank #4 (Sell). Some better-ranked stocks in the industry are America Movil, S.A.B. de C.V. (AMX - Free Report) , KT Corporation (KT - Free Report) and Vodafone Group PLC (VOD - Free Report) , each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

America Movil has a long-term earnings growth expectation of 24.3%. It delivered an earnings surprise of 5.7%, on average, in the trailing four quarters.

KT Corporation has a long-term earnings growth expectation of 9.8%.

Vodafone has a long-term earnings growth expectation of 3%.

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