M&A looms in Southern Europe as Iliad and Orange reportedly make overtures

Iliad has reportedly made a takeover bid for Vodafone’s Italian unit, while Orange is exploring the possibility of a merger with MasMovil in Spain, according to the industry rumour mill.

It’s hardly surprising that mergers and acquisitions are on the cards in those two Southern European markets, where the competitive environment has been fierce for some time. And the players involved are also some of the most likely candidates to be shaking things up.

Furthermore, the Italy story is not new. Last monthReuters’ sources revealed that Iliad and Vodafone were holding talks that could lead to the combination of their Italian businesses, and now Bloomberg has added fuel to the fire, reporting that Iliad has actually made an offer for its rival.

Iliad submitted a bid to Vodafone’s board late last week, the newswire’s sources said, without providing further details. The implication is that that French firm is looking to buy out Vodafone – and indeed, the most likely scenario is that Iliad would be the buyer and Vodafone the seller – but the sources did not explicitly say that; it could be that Iliad has tabled some sort of merger offer.

There has been no official comment from either party though, so for now it’s all just speculation.

It’s certainly not unfounded though. The bid was reportedly made around the same time that Vodafone CEO Nick Read once again hinted at forthcoming M&A, this time using the expression “proactive portfolio actions.” Juxtapose that with his comments about the telco’s priorities in Germany, Spain and at Vodafone Business, and you start to see which markets are potential candidates for portfolio management. (It’s Italy and the UK, just to save anyone Googling.)

Like its rivals in the same market, Vodafone has struggled with the intense competition in Spain over many quarters, but its name is not in the frame for consolidation there. Not today, at least.

Orange and MasMovil are working on a 50:50 joint venture in Spain, according to Spanish financial publication Expansion, as reported by Reuters.

At this stage, we don’t know much about the companies’ plans, other than the fact that control of the merged entity will shared by Orange and MasMovil’s current shareholders: KKR, Cinven and Providence. Again, there has been no comment from the telcos themselves.

It is worth noting that KKR has just sold out of Telefonica’s submarine cable business, having held a 40% stake for the past five years, buying in when the business also included a sizeable towers portfolio. Selling the stake back to Telefonica and partner Pontegadea may have been a purely financial decision, but it’s not out the question that there was a strategic element too.

If reports of the Orange/MasMovil merger prove correct – and let’s not forget that MasMovil has been the subject of M&A rumours for years without any coming to fruition – the resulting entity would become a force to be reckoned with in Spain.

There’s little to pick between Spain’s mobile players these days. Incumbent Telefonica still leads the market with a 28% share, but fourth-placed MasMovil has grown its share rapidly, reaching 20% at the end of Q3 last year, according to regulator the CNMC’s figures. Orange and Vodafone rank second and third, with almost 23% and 22% respectively. An Orange/MasMovil tie-up would turn the market on its head. And its a similar, if less pronounced situation in the fixed broadband space.

Thus the regulator and other relevant authorities would have a close look at any deal.

As they would in Italy, where Iliad entered the market as recently as four years ago on the back of the European Commission’s desire to retain a four-player market when it okayed the Wind Tre merger.

A lot has changed in that time, but should the talks being rumoured today result in merger deals, we would find out pretty quickly what the regulatory appetite for in-market consolidation in Europe looks like now.