Iliad said on Monday it had submitted a proposal to Vodafone VOD.L to merge their Italian units, a move that would combine its fast-growing consumer base with the British company’s strength in business in a highly competitive market.
Shares in Vodafone, which said last month it was reviewing options for its Italian operation, rose 6.6% in early trading on the Iliad joint-venture proposal, which Reuters first reported on Friday.
The French company’s move comes as Vodafone also explores a potential deal with Swisscom’s SCMN.S Fastweb Italian unit, sources familiar with the matter said.
Operators in Italy are studying ways to consolidate a market grappling with shrinking revenue and margins, which is depriving investors of returns on their capital.
Vodafone said it noted Iliad’s offer, which has the unanimous backing of Iliad’s board and its main shareholder Xavier Niel.
“Vodafone is supportive of in-market consolidation in countries where it is not achieving appropriate returns on invested capital and confirms it is exploring options with several parties to achieve this in Italy, including through a merger or a disposal,” it said.
Iliad and Vodafone had been involved in talks for some time before Iliad made its proposal public on Monday, one person familiar with the matter said, but sticking points included governance and which company would appoint the chief executive.
Iliad, which only launched in Italy six years ago, said the merged business would be expected to generate revenues of around 5.8 billion euros ($6.34 billion) and core earnings (EBITDA) of approximately 1.6 billion euros for the year ending March 2024.
Under the plan, Vodafone would receive 50% of the share capital of the newly merged business, together with a cash payment of 6.5 billion euros and a shareholder loan of 2.0 billion euros to ensure long-term alignment, Iliad added.
It would have an option to buy a further 10% of the merged unit’s shares each year at the stock price when the deal closes.
Iliad offered 11.25 billion euros to buy Vodafone Italy outright last year but was rebuffed.
It said its new joint-venture proposal implied an earnings multiple of 7.8 times, which was higher than the 7.1 times multiple offered last year.
Shares in Telecom Italia TLIT.MIrose 3.7%, with traders citing optimism over a tie-up between Iliad and Vodafone, which would reduce the numbers of the players. Swisscom was up 2%.
Telecom Italia (TIM) leads in the mobile market, including machine-to-machine connections, with 28% of the market, followed by Vodafone with 27.4%, Hutchison’s Wind Tre with 23.8% and Iliad with 9.4%, according to regulator AGCOM’s latest data.
TIM has nearly 40% of the fixed line broadband market, while Vodafone has 16.7% and Fastweb has 14.1%.
($1 = 0.9154 euros)
(Reuters)