Vodafone, Iliad in talks to combine Italian units

Telecom firms Vodafone and Iliad are in talks to strike a deal in Italy that would combine their respective businesses in a bid to end cut-throat competition in the euro zone’s third-biggest economy, sources familiar with the matter told Reuters.

Discussions between the two companies are ongoing and both parties are actively studying ways to clinch a tie-up of their respective businesses in Italy, the sources said, speaking on condition of anonymity.

Iliad, which will make its wireline broadband debut in Italy on Jan 25, is working with investment bank Lazard on its strategic plans in Italy, one of the sources said, cautioning that a deal was not certain.

If successful, a deal would create a telecoms powerhouse with a mobile market penetration of about 36 per cent and combined revenues of nearly 6 billion euros ($6.80 billion).

Iliad and Vodafone declined to comment while Lazard was not immediately available for comment.

Iliad, led by billionaire founder Xavier Niel, has been reviewing options to further expand in Italy in recent months as it seeks to take advantage of deal fever in Italy’s telecoms industry to accelerate consolidation and cease a price war that has been slashing its margins, the sources said.

The discussions come as incumbent Telecom Italia is still assessing a 10.8 billion euro ($12.25 billion) takeover approach from U.S. fund KKR aimed at taking Italy’s biggest phone group private.

Niel, who founded Iliad in 1990 and sits on KKR’s board as an independent board director, wants to play kingmaker in the fragmented Italian telecoms market where he started an aggressive price war in 2018 when Iliad made its first foray in Italy.

Industry executives have repeatedly urged to pursue four-to-three telecoms mergers that could unlock cost synergies and lift margins by cutting the existing number of mobile operators in Italy, namely TIM, Vodafone, WindTre and Iliad.

Iliad’s Italy boss Benedetto Levi said on Jan 13 that the French firm was open to buying a rival operator.

“If a company, as a whole or in part, becomes available on the market we will consider it without any preconception,” he told financial daily Il Sole 24 Ore.

Previously, Vodafone’s boss Nick Read said on Nov. 17 that consolidation was needed in Europe, particularly in Italy, Spain and Portugal where “all players are suffering.”

Vodafone has annual revenue of about 5 billion euros in Italy and a 28.5 per cent market penetration among mobile phone customers, according to Italy’s communications watchdog AGCOM.