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

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LONDON, Jan 22 (Reuters) – Telecoms companies Vodafone (VOD.L) and Iliad are in talks to strike a deal in Italy that would combine their respective businesses in a bid to end fierce competition in the world’s third-largest economy. euro zone, sources familiar with the matter told Reuters.

Discussions between the two companies are ongoing and both parties are actively exploring ways to conclude a combination of their respective businesses in Italy, the sources said, speaking on condition of anonymity.

Iliad, which will make its wired broadband debut in Italy on January 25, is working with investment bank Lazard (LAZ.N) on its strategic plans in Italy, one of the sources said, warning that a deal wasn’t sure.

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If successful, a deal would create a telecommunications powerhouse with a mobile market penetration of around 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 in recent months considered options to expand further in Italy as it seeks to take advantage of deal fever in Italy’s telecoms industry to accelerate consolidation and end a price war that squeezed its margins, the sources said.

The talks come as incumbent Telecom Italia is still evaluating an approach to take over 10.8 billion euros ($12.25 billion) from U.S. fund KKR to privatize the largest Italian telephony group. Read more

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

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

Iliad boss in Italy, Benedetto Levi, said on January 13 that the French company was open to buying a competing operator.

“If a company, in whole or in part, becomes available on the market, we will examine it without any preconceived ideas,” he told financial daily Il Sole 24 Ore.

Earlier, Vodafone boss Nick Read said on November 17 that consolidation was needed in Europe, especially in Italy, Spain and Portugal where “all players are suffering”.

OBSTACLES

Vodafone has an annual turnover of around 5 billion euros in Italy and a market penetration of 28.5% among mobile phone customers, according to AGCOM, the Italian communications watchdog.

Iliad is on the contrary much smaller with its Italian unit registering an annual turnover of 674 million euros in 2020 and a mobile market share of around 7.7%, according to AGCOM. But the company has held up well during the pandemic, with third-quarter sales up 21% to 207 million euros in 2021.

Any merger between the two companies should get the blessing of Rome – which sees the country’s telecommunications infrastructure as an asset of strategic interest – and European antitrust regulators who have spoken out against previous merger attempts in Europe, including the Three’s takeover of Britain’s O2 in 2016, one of the sources said.

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

Last year, Niel made a €3.1 billion bid for full control of Iliad and then delisted the company from the Paris stock exchange, signaling his intention to make the group a “major telecommunications player in Europe”.

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

Our standards: The Thomson Reuters Trust Principles.

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