• Vodafone Group has long been seeking to offload its Italian operations
• Xavier Niel’s Iliad Group had a previous €11.25bn offer for Vodafone Italia rejected in 2022
• And now Iliad is back with a merger offer that values Vodafone Italia at €10.45bn
• Combining their Italian operations would create a new mobile market leader with a market share of about 35%
• Vodafone Group’s share price jumped 7% on news of Iliad’s offer 

Having initially failed with an outright takeover offer for Vodafone Group’s Italian operations, Xavier Niel’s Iliad Group has returned to the M&A negotiating table with the offer of a merger deal that would value Vodafone Italia at €10.45bn and create Italy’s largest mobile operator by subscriber market share. 

Vodafone has been seeking some kind of deal for its Italian operations for some time, but has been determined to get the best possible deal: In February 2022, it rejected a takeover offer for Vodafone Italia worth €11.25bn from Iliad Group, which had teamed up with private equity firm Apax Partners. At the time, Vodafone Group’s CEO was Nick Read, who was essentially ousted at the end of that year by shareholders impatient at the slow pace of restructuring at the operator.    

Now Niel, who used his Atlas Investissement unit to acquire a 2.5% stake in Vodafone Group in September 2022, is back to tempt Vodafone Group’s latest CEO, Margherita Della Valle, with a new offer: To form a company, currently dubbed NewCo, by merging Iliad Italia and Vodafone Italia in a deal that would net Vodafone €6.5bn in cash but also give it a 50% stake in the joint operation with the option to reduce its holding over time by selling chunks to Iliad. The full details of the complex deal are available in this Iliad announcement.

According to Iliad, merging the currently competing operations would “establish an attractive market offering centred around innovation, growth and unparalleled customer experience… Thanks to the joint expertise and talent at Iliad and Vodafone, NewCo would become the leading actor for investment in cutting-edge technology and customer-centric solutions in the Italian telecom market, supporting and accelerating the country’s digital transformation and especially fibre adoption. The combined entity would specifically benefit from Iliad’s innovative approach to connectivity, affordability and digital inclusivity as well as the expertise of Vodafone in B2B,” stated Iliad.

Iliad Group CEO Thomas Reynaud noted: “The market context in Italy calls for the creation of the most innovative telecom challenger, with [the] ability to compete and create value in a competitive environment. 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 €4bn of investment planned over the next five years.”

The merger offer comes at a time of ongoing turmoil for Italy’s national operator, Telecom Italia (TIM), which is saddled with enormous debt and is facing a legal challenge from its largest shareholder over plans to sell its fixed access network to private equity firm KKR.  

Niel’s Iliad Group has an impressive track record across Europe, including in Italy. Having built a successful business in France based on low-cost but reliable and customer-friendly fixed broadband and mobile services, Iliad took its model to Italy in 2018 and quickly attracted millions of mobile customers with its cut-price deals. 

Now Iliad Italia has more than 10 million mobile customers and a market share of about 12.8% (not including cellular internet of things connections), according to June 2023 statistics from Italy’s regulator AGCOM. It also has about 172,000 fibre broadband customers. It is a growing business that is on course to report full year sales of more than €1bn, having generated revenues of €764m for the first nine months of this year (up by 12.5% year on year). 

Vodafone Italia is bigger but has been shrinking in recent years, in large part because of the intense competition from Iliad. It has about 17.5 million mobile customers and a market share of about 24.3%. In the six months to the end of October, Vodafone Italia generated revenues of €2.32bn, down by 2.4% from the same period a year earlier, while adjusted earnings before taxes and other costs came in at €645m, down by 15%. About two-thirds of its service revenues come from mobile services and a third from fixed-line services (including broadband). In terms of customer type, about two-thirds of its service revenues come from consumer customers and a third from enterprise customers.

Combining the two units would create a service provider with annual revenues of about €5.8bn and earnings before tax and other charges of about €1.6bn, based on the current financial performance of both operations.  

It would also create Italy’s single largest mobile player with about 28 million mobile customers and a market share of about 35%, ahead of Wind Tre and Telecom Italia, which both have a market share of just over 24%.

In a statement, Vodafone Group said: “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.”

But investors are clearly excited by the prospect of a deal with Iliad: Vodafone Group, which recently struck a deal to sell its business in Spain (another of its flagging European operations) for €5bn, saw its share price on the London Stock Exchange rise by almost 7% to 69 pence following news of Iliad’s offer. 

- Ray Le Maistre, Editorial Director, TelecomTV