Iliad proposes merger with Vodafone in Italy

The proposal, which has the unanimous support of Iliad’s board of directors and its main shareholder Xavier Niel, is pitched as combining Iliad’s ‘innovative approach to connectivity, affordability, and digital inclusivity’ and Vodafone’s B2B chops.

It values Vodafone Italia at €10.45 billion and Iliad Italia at €4.45 billion. Both Vodafone and Iliad would obtain 50% of the share capital of NewCo, while the former would get a €6.5 billion cash payment and a €2.0 billion shareholder loan, and the latter would get a €500 million cash payment and a €2.0 billion shareholder loan.

Additionally, Iliad would have a call option on Vodafone’s equity stake in NewCo and would be able to acquire a block of 10% of share capital every year at a price per share equal to the equity value at closing. If this were exercised in full, it would generate an additional €1.95 billion in cash for Vodafone, claims the release.

All in all, the merged business would be expected to generate revenues of €5.8 billion and EBITDAaL of approximatively €1.6 billion for financial year ending March 2024.

“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,” said Thomas Reynaud, Iliad Group CEO. “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 €4 billon of investment planned over the next 5 years.”

In response to the proposal, Vodafone put out a statement saying: “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.”

Last year Iliad offered to buy Vodafone’s Italian operation outright, though the bid was rejected because it was ‘not in the best interests of shareholders.’ The Italian telecoms market is highly competitive, so while that deal didn’t go anywhere, there could be more appetite for this one – though as it stands Vodafone’s response isn’t giving much away.