Eir owner Iliad offers to merge Italian operations with Vodafone Italia

Vodafone has over 27% of the mobile phone market in Italy

Iliad, the French telecoms group that also owns Eir, has said it submitted a proposal to Vodafone to merge their Italian units, in a long anticipated move that will strengthen Iliad's presence across Europe. 

Iliad is controlled by French billionaire Xavier Niel who first took control of Eir six years ago and has expanded its presence rapidly elsewhere ever since. 

Shares in Vodafone, which said last month it was reviewing options for Vodafone Italia, rose 6%, on the Iliad joint-venture proposal. The French company's move comes as Vodafone also explores a potential deal with Swisscom's Fastweb Italian unit. 

Operators in Italy are studying ways to consolidate a market grappling with shrinking revenue and margins, which is depriving investors of returns on their capital. Vodafone said it noted Iliad's offer, which has the unanimous backing of Iliad's board and its main shareholder Mr Niel.

Iliad and Vodafone had been involved in talks for some time before Iliad made its proposal public, but sticking points included governance and which company would appoint the chief executive. 

Iliad, which only launched in Italy six years ago, said the merged business would be expected to generate revenues of around €5.8bn and core annual earnings of approximately €1.6bn. 

Under the plan, Vodafone would receive 50% of the share capital of the newly merged business, together with a cash payment of €6.5bn and a shareholder loan of €2bn to ensure long-term alignment, Iliad added. It would have an option to buy a further 10% of the merged unit's shares each year. 

The new joint-venture proposal implied an earnings multiple of 7.8 times, which was higher than the 7.1 times multiple offered last year.

Shares in Telecom Italia rose as the consolidation will mean fewer competitors in Italy.  Telecom Italia, or TIM, leads in the mobile market with 28% of the market, followed by Vodafone with over 27%, Hutchison's Wind Tre with almost 24%, and Iliad with almost 9.5%. TIM has nearly 40% of the fixed line broadband market, while Vodafone has almost 17% and Fastweb has 14%. 

Irish Examiner and Reuters