Exclusive-Vodafone and Iliad in talks to combine Italian units – sources

By Pamela Barbaglia and Elvira Pollina

LONDON (Reuters) – Telecom corporations Vodafone and Iliad are in talks to strike a deal in Italy that may mix their respective companies in a bid to finish cut-throat competitors within the euro zone’s third-biggest financial system, sources aware of the matter advised Reuters.

Discussions between the 2 corporations are ongoing and each events are actively finding out methods to clinch a tie-up of their respective companies in Italy, the sources stated, talking on situation of anonymity.

Iliad, which is able to make its wireline broadband debut in Italy on Jan. 25, is working with funding financial institution Lazard on its strategic plans in Italy, one of many sources stated, cautioning {that a} deal was not sure.

If profitable, a deal would create a telecoms powerhouse with a cell market penetration of about 36% and mixed revenues of almost 6 billion euros ($6.80 billion).

Iliad and Vodafone declined to remark whereas Lazard was not instantly obtainable for remark.

Iliad, led by billionaire founder Xavier Niel, has been reviewing choices to additional increase in Italy in latest months because it seeks to benefit from deal fever in Italy’s telecoms business to speed up consolidation and stop a value struggle that has been slashing its margins, the sources stated.

The discussions come as incumbent Telecom Italia remains to be assessing a ten.8 billion euro ($12.25 billion) takeover strategy from U.S. fund KKR geared toward taking Italy’s largest cellphone group personal.

Niel, who based Iliad in 1990 and sits on KKR’s board as an impartial board director, desires to play kingmaker within the fragmented Italian telecoms market the place he began an aggressive value struggle in 2018 when Iliad made its first foray in Italy.

Trade executives have repeatedly urged to pursue four-to-three telecoms mergers that would unlock value synergies and carry margins by slicing the present variety of cell operators in Italy, particularly TIM, Vodafone, WindTre and Iliad.

Iliad’s Italy boss Benedetto Levi stated on Jan. 13 that the French agency was open to purchasing a rival operator.

“If an organization, as a complete or partially, turns into obtainable in the marketplace we’ll take into account it with none preconception,” he advised monetary each day Il Sole 24 Ore.

Beforehand, Vodafone’s boss Nick Learn stated on Nov. 17 that consolidation was wanted in Europe, notably in Italy, Spain and Portugal the place “all gamers are struggling.”

HURDLES

Vodafone has annual income of about 5 billion euros in Italy and a 28.5% market penetration amongst cell phone clients, in line with Italy’s communications watchdog AGCOM.

Iliad is as a substitute a lot smaller with its Italian unit reporting 674 million euros in annual income in 2020 and a cell market share of about 7.7%, in line with AGCOM. However the firm has fared nicely in the course of the pandemic, with third quarter gross sales up 21% to 207 million euros in 2021.

Any tie-up between the 2 corporations would want to win the blessing from each Rome – which sees the nation’s telecoms infrastructure as an asset of strategic curiosity – and European antitrust regulators who dominated towards earlier merger makes an attempt in Europe together with Three’s takeover of Britain’s O2 in 2016, one of many sources stated.

Iliad itself was allowed to enter Italy as a part of the treatment bundle that Vimpelcom and Hutchison negotiated with European regulators to mix their Italian cell operations in 2016 with out altering the variety of current gamers.

Final yr, Niel made a 3.1 billion euro supply for full management of Iliad and subsequently delisted the corporate from the Paris inventory market, signalling his intention to show the group right into a “main telecommunications participant in Europe.”

($1 = 0.8818 euros)

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