Billionaire telecoms tycoon plots Italian marriage to Vodafone

Billionaire telecoms tycoon Xavier Niel is plotting a €10.5bn (£9bn) Italian merger with Vodafone as network operators push for scale in an increasingly competitive market.

Mr Niel’s Iliad Group has tabled a proposal to Vodafone to combine their Italian businesses, creating what would be the “most innovative challenger” in the country.

Iliad said the tie-up would accelerate the rollout of full-fibre broadband and 5G in Italy with a combined group of five mobile network operators and more than 10 broadband providers.

The proposed deal would value Vodafone Italia at €10.45bn. The London-listed company would gain half the share capital of the combined entity, as well as €6.5bn in cash and a €2bn shareholder loan.

Iliad Italia would obtain the other half of the share capital, alongside a €500m cash payments and €2bn loan.

Iliad would also have a call option to acquire additional share blocks of 10pc each year. If it were to buy out the entire company, this would hand a further €2bn to Vodafone.

Shares in Vodafone jumped more than 7pc after the proposed deal was announced.

The approach suggests Mr Niel is ramping up the pressure on Vodafone almost two years after a previous €11bn Italian takeover bid was rejected.

The 56-year-old billionaire owns the Free telecoms brand in France, while Iliad also operates in Poland.

An influential figure in his home country, Mr Niel is also a major investor in newspaper Le Monde. In September, he bought Czech billionaire Daniel Kretinsky’s stake in the business and will transfer the shares to an independent foundation as part of a plan to guarantee editorial independence.

However, the tycoon faces competition in his bid for Vodafone Italia. The company is reportedly also in discussions about a potential deal with Fastweb, a mobile and broadband provider owned by Swisscom.

Any deal between Iliad and Vodafone is likely to be reviewed by competition regulators in Brussels.

The proposed merger comes as Vodafone boss Margherita Della Valle looks to slim down the company’s sprawling operations and pay down debt.

The company has struck a £15bn deal with Three to create the UK’s largest mobile network, although the deal is facing scrutiny from competition regulators, as well as a potential review on national security grounds.

In October, Vodafone sold its Spanish operations to Zegona Communications for €5bn.

Ms Della Valle has also outlined plans to cut 11,000 jobs as she admitted the company’s performance “has not been good enough”. Around 2,700 of those cuts took place in the first half of this year.

Iliad said the combined Italian company would generate profits of around €1.6bn on revenues of €5.8bn. It added that the merger would create €600m in cost savings.

Karen Egan, head of mobile at Enders Analysis, described the implied valuation of Vodafone Italia as “really quite attractive in today’s market”.

She added: “[Iliad] will definitely be conscious that Vodafone shareholders want action and they want to take advantage of that.”

Thomas Reynaud, Iliad chief executive, said: “The market context in Italy calls for the creation of the most innovative telecom challenger, with ability to compete and create value in a competitive environment.

“We believe that the profiles and complementary expertise of Iliad and Vodafone in Italy would allow us to build a strong operator with the ability and financial strength to invest for the long term.

“NewCo would be fully committed to accelerating the country’s digital transformation and especially fibre adoption and 5G deployment, with more than €4bn of investment planned over the next five years.”

Vodafone said: “Consistent with its previous statements, 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.

“There can be no certainty that any transaction will ultimately be agreed. If required, a further announcement will be made when appropriate.”

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