Vodafone and iliad, merger hypothesis to end the "price war"

Vodafone and iliad

Time for changes for iliad. In an interview released a few days ago to Sole 24 Ore, iliad Italia CEO Benedetto Levi announced the imminent landing of iliad in the fixed telephony market and therefore also in the fiber one. But that's not all: in the same interview, Levi said he was ready to expand iliad's business by acquiring all or part of one of the three main Italian operators (Wind Tre, Vodafone and TIM) without any restrictions whatsoever.

Well, that statement was more than a vague hypothesis. iliad is still in negotiations with one of the three operators mentioned - Vodafone, specifically - to conclude an agreement that would lead to the merger of the two companies. The goal is to put an end to the ruthless competition between operators that prevails in Italy, as revealed to Reuters by sources familiar with the issue.

The investment bank Lazard would support iliad. If successful, iliad and Vodafone would create a telecommunications powerhouse with a mobile market penetration of around 36% and combined revenues of up to € 6 billion. Currently, Vodafone has an annual turnover of around 5 billion euros and a market penetration of 28.5% of mobile telephony customers (source: AGCOM). For its part, iliad can count on a mobile market share of approximately 7.7% and an annual turnover of 674 million euros (2020 data).

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EXCLUSIVE Vodafone and Iliad in talks to combine Italian units - sources

FILE PHOTO: Branding for Vodafone is seen on the exterior of a shop in London, Britain

By Pamela Barbaglia and Elvira Pollina

LONDON (Reuters) - Telecom firms Vodafone and Iliad are in talks to strike a deal in Italy that would combine their respective businesses in a bid to end cut-throat competition in the euro zone's third-biggest economy, sources familiar with the matter told Reuters.

Discussions between the two companies are ongoing and both parties are actively studying ways to clinch a tie-up of their respective businesses in Italy, the sources said, speaking on condition of anonymity.

Iliad, which will make its wireline broadband debut in Italy on Jan. 25, is working with investment bank Lazard on its strategic plans in Italy, one of the sources said, cautioning that a deal was not certain.

FILE PHOTO: A guest speaks on a mobile phone as she arrives for the French telecoms operator Iliad

If successful, a deal would create a telecoms powerhouse with a mobile market penetration of about 36% and combined revenues of nearly 6 billion euros ($6.80 billion).

Iliad and Vodafone declined to comment while Lazard was not immediately available for comment.

Iliad, led by billionaire founder Xavier Niel, has been reviewing options to further expand in Italy in recent months as it seeks to take advantage of deal fever in Italy's telecoms industry to accelerate consolidation and cease a price war that has been slashing its margins, the sources said.

The discussions come as incumbent Telecom Italia is still assessing a 10.8 billion euro ($12.25 billion) takeover approach from U.S. fund KKR aimed at taking Italy's biggest phone group private.

Niel, who founded Iliad in 1990 and sits on KKR's board as an independent board director, wants to play kingmaker in the fragmented Italian telecoms market where he started an aggressive price war in 2018 when Iliad made its first foray in Italy.

FILE PHOTO: Xavier Niel, founder and majority-owner of French broadband Internet provider Iliad attends the company

Industry executives have repeatedly urged to pursue four-to-three telecoms mergers that could unlock cost synergies and lift margins by cutting the existing number of mobile operators in Italy, namely TIM, Vodafone, WindTre and Iliad.

Iliad's Italy boss Benedetto Levi said on Jan. 13 that the French firm was open to buying a rival operator.

'If a company, as a whole or in part, becomes available on the market we will consider it without any preconception,' he told financial daily Il Sole 24 Ore.

Previously, Vodafone's boss Nick Read said on Nov. 17 that consolidation was needed in Europe, particularly in Italy, Spain and Portugal where 'all players are suffering.'

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Vodafone has annual revenue of about 5 billion euros in Italy and a 28.5% market penetration among mobile phone customers, according to Italy's communications watchdog AGCOM.

Iliad is instead much smaller with its Italian unit reporting 674 million euros in annual revenue in 2020 and a mobile market share of about 7.7%, according to AGCOM. But the company has fared well during the pandemic, with third quarter sales up 21% to 207 million euros in 2021.

Any tie-up between the two firms would need to win the blessing from both Rome - which sees the country's telecoms infrastructure as an asset of strategic interest - and European antitrust regulators who ruled against previous merger attempts in Europe including Three's takeover of Britain's O2 in 2016, one of the sources said.

FILE PHOTO: Xavier Niel, founder of French broadband Internet provider Iliad, shows off the new set-top box, the Freebox Delta, in Paris

Iliad itself was allowed to enter Italy as part of the remedy package that Vimpelcom and Hutchison negotiated with European regulators to combine their Italian mobile operations in 2016 without altering the number of existing players.

Last year, Niel made a 3.1 billion euro offer for full control of Iliad and subsequently delisted the company from the Paris stock market, signalling his intention to turn the group into a 'leading telecommunications player in Europe.'

FILE PHOTO: RJ45 cables are pictured inside the data centre operated by French telecoms operator Iliad in Paris

($1 = 0.8818 euros)

(Reporting by Pamela Barbaglia in London and Elvira Pollina in Milan, additional reporting by Mathieu Rosemain in Paris. Editing by Louise Heavens)

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Vodafone and iliad, merger hypothesis to end the "price war"