Sources familiar with the matter told Reuters that the telecom firms Vodafone and Iliad are in talks to strike a deal in Italy that would combine their businesses in a bid to end cut-throat competition in the euro zone's third-biggest economy.
Both companies are studying ways to clinch a tie-up of their respective businesses in Italy, the sources said, speaking on condition of anonymity, both companies are currently studying ways to clinch a tie-up of their respective businesses in Italy.
One of the sources said that the deal is not certain as Iliad, which will make its wireline broadband debut in Italy on January 25, is working with investment bank Lazard on its strategic plans in Italy.
If successful, a deal would create a telecoms powerhouse with a mobile market penetration of around 36% and combined revenues of nearly 6 billion euros $6.80 billion. Lazard and Vodafone wouldn't be available for comment, while Lazard was not immediately available for comment.
Iliad, led by billionaire founder Xavier Niel, has been looking at options to further expand in Italy in recent months as it wants to take advantage of deal fever in Italy's telecoms industry to consolidate and stop a price war that has been slapping 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 the board of KKR as an independent board director, wants to play kingmaker in the fragmented Italian telecoms market where he started a price war in 2018 when Iliad made its first foray in Italy.
Industry executives have been 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 January 13 that the French firm was open to buying a rival operator.
If a company becomes available on the market, we will consider it without any preconception, he told the Financial Daily Il Sole 24 Ore.
On November 17th, Vodafone's boss Nick Read said that consolidation was needed in Europe, particularly in Italy, Spain and Portugal, where all players are suffering. According to Italy's communications watchdog AGCOM, Vodafone has an annual revenue of around 5 billion euro in Italy and a 28.5% market penetration among mobile phone customers.
The Italian unit of Iliad reported 674 million euros in annual revenue in 2020 and a mobile market share of about 7.7%, according to AGCOM. The company's third quarter sales rose 21% to 207 million euro in 2021, with the company having fared well during the pandemic.
The sources said that any merger attempts in Europe including Three's takeover of Britain's O2 in 2016 would need to win the approval of both Rome - which sees the country's telecoms infrastructure as an asset of strategic interest and European antitrust regulators.
Iliad was allowed to enter Italy as part of the remedy package that Vimpelcom and Hutchison negotiated with European regulators to combine their Italian mobile operations in 2016 without altering the number of existing players.
Niel made a 3.1 billion euro offer last year for full control of Iliad and delisted the company from the Paris stock market, signalling his intention to turn the group into a leading telecommunications player in Europe.