French billionaire Xavier Niel’s telecoms group Iliad has offered more than €11bn to buy Vodafone’s Italian business, said people familiar with the matter.
The bid represents a valuation of roughly seven times earnings before interest, taxes, depreciation and amortisation. That compares to Barclays Capital’s estimate that the business is worth an enterprise value of €6.9bn, or equivalent to 5.2 times its expected ebitda in 2022.
The attempt at consolidating the crowded Italian market is a bold one by Niel given that Iliad only entered the country in 2018 and remains the fourth-largest mobile player, with about 8 per cent market share. UK-listed Vodafone has roughly 28 per cent market share in mobile on par with leader Telecom Italia’s TIM brand, according to the Italian telecoms regulator Agcom.
The offer is a sign of how Niel still has ambitious expansion plans after having taken Iliad private last year over concerns that public investors were undervaluing the business. The billionaire sees opportunities to expand in European telecoms outside of Iliad’s home market of France, and has also expanded the company via acquisitions in Poland in recent years.
For the deal in Italy, Iliad has lined up financing from a large European bank and received the backing of an unnamed investment fund to help finance the takeover, said the people.
Vodafone declined to comment on the details of the offer. Italy is its third-biggest market in terms of revenue after Germany and the UK.
Karen Egan, an analyst at Enders Analysis, said the Iliad offer was attractive. “Take the money and run,” she said of Vodafone. “That’s a very full takeover multiple and it definitely includes a share of the upside from consolidation,” referring to improved market conditions for companies operating in a market with fewer competitors.
Some analysts reckon Vodafone’s Italian business is worth more though. In a note published on February 7, Deutsche Bank analyst Robert Grindle said that “in the event of a full sale we expect the multiple to begin with an 8 not a 7”.
Vodafone has come under pressure from the recent arrival of activist investor Cevian Capital, which has urged the telecoms group to restructure its portfolio, strengthen performance in key markets, and refresh its board so as to improve its lagging share price.
A second activist investor, Coast Capital Management, has also taken an undisclosed stake, and told the Financial Times that it supported the company and its leaders and would “defer to management to decide the right choice” with respect to the Italy bid.
Egan said a sale to Iliad could potentially “resolve Vodafone’s leverage issues”, noting that even a sale valuing the business at 5.2 times ebitda could cut Vodafone’s net debt-to-ebitda ratio from 2.9 times at the end of the first half of the year to around 2.65 times.