Pamela Barbaglia, Elvira pollina

LONDON, (Reuters) – Telecom companies Vodafone (NASDAQ) and Iliad have been in discussions to reach a deal in Italy to combine their businesses. This would help end the fierce competition within the third largest economy in the Euro zone. Sources familiar with the matter said that the agreement was being discussed by Reuters.

Both companies have been in contact and are currently discussing ways of tying up with each other’s businesses in Italy.

Iliad will launch its wireline broadband service in Italy Jan. 25. One source said that Iliad is currently working with Lazard (NYSE 🙂 to develop its strategy in Italy. However, he cautioned that no deal was certain.

A deal with Vodafone would result in a telecoms giant that has a 36% mobile penetration rate and combined revenues close to 6 billion euro ($6.80billion).

Iliad, Vodafone and Lazard declined to comment.

Sources said that Iliad’s founder, Xavier Niel (a billionaire), has been looking at options for expansion in Italy over the past months. It is trying to capitalize on deal fever in Italy’s telecoms sector to speed consolidation and end a price war which has been slashing it margins.

As incumbents, the discussions are underway Telecom Italia (MI:), is still assessing a 10.8 Billion Euro ($12.25 Billio) buyout approach by U.S. funds KKR aimed to take over Italy’s largest telephone group.

Niel founded Iliad back in 1990. He sits as an independent director on KKR’s board. Niel wants to be a kingmaker within the fragmented Italian telecoms markets. In 2018, Iliad’s first venture in Italy, he launched an aggressive price war.

Industry leaders have repeatedly urged telecoms executives to explore four-to-three mergers in order to unlock cost synergies. Margin increases could be achieved by reducing the current number of operators in Italy (TIM, Vodafone WindTre and Iliad).

Benetto Levi, Iliad’s Italy boss said that on January 13, the French firm would be open to buying another operator.

He said that if a company becomes accessible on the market, whether as a whole, or in part, we will be open to considering it,” Il Sole 24 Ore reported.

On Nov. 17, Vodafone boss Nick Read stated that consolidating Europe was necessary, especially in Italy, Spain, and Portugal, where all players “are suffering.”

HURDLESS

Vodafone Italy boasts a 5 Billion Euro annual turnover and an average 28.5% mobile penetration, according to Italy’s Communications Watchdog AGCOM.

Iliad’s Italian division reports 674 million euro in annual revenue for 2020, and has a 7.7% mobile market share according to AGCOM. The pandemic was a success for the company, as sales rose 21% to 207,000,000 euros in the third quarter of 2021.

The approval of Rome and European antitrust regulators, who have rejected previous European mergers including Three’s acquisition of O2 in Britain in 2016, is required for any tie-up.

Iliad herself was permitted to enter Italy in the framework of the remedial package Vimpelcom/Hutchison developed to allow them to combine their Italian mobile businesses in 2016.

Niel offered 3.1 billion euros for Iliad’s full control and then delisted Iliad from Paris Stock Exchange. This signaled his intent to make the group a leading European telecommunications company.

($1 = 0.8818 euros)