The deal would create a joint venture ranking as Italy’s largest mobile operator.
In the days of sail, merchant ships jettisoned cargo in dribs and drabs in rough conditions. Each sacrifice made it easier to go on, but reduced the value of the vessel.
Vodafone’s chief executive, Margherita Della Valle, is wrestling with the same trade off. Low growth, tough competition and an unwieldy conglomerate structure mean the UK mobile operator is making heavy going.
On Monday, France’s Iliad Group, run by billionaire Xavier Niel, offered to merge its Italian operations with those of Vodafone. The deal, worth €10.5bn to the latter, would create a joint venture ranking as Italy’s largest mobile operator.
Italy’s Directorate General for Competition and phone operators have fought each other to a standstill that keeps prices — and investment — low. Consolidation could help break that deadlock.
Della Valle, who is herself Italian, is in the business of heaving impedimenta overboard. She sold a Spanish subsidiary in October for up to €5bn.
The Iliad offer would leave Vodafone with 50 per cent of the Italian JV. Iliad would hold call options to buy a tenth more of the business every year at the same purchase price, eventually obtaining full ownership.
This may seem like a rerun of Iliad’s previous offer in February last year. That was higher at €11.25bn in total, or 7.7 times ebitda March 2023 ebitda.
Della Valle could save some face by arguing that this offer rates Vodafone Italia at a slightly higher ebitda multiple. It is above the figure of six times for the whole group, according to analyst estimates from Visible Alpha.
Last time, Iliad’s offer never got past Vodafone’s board. This time is different, thinks James Ratzer at New Street Research. Della Valle needs to show progress and should relinquish the Italian business. The valuation gap between what the market will pay for Vodafone stock and the prices strategic buyers will give for its assets grows ever wider.
Regulatory scrutiny looks less of an issue than it was. This deal would be a consolidation from five to four big operators in Italy. A four-to-three transaction in Spain — Orange combined with MasMovil — got the nod from Brussels this year.
Della Valle should dispense with Italy as well as Spain, then return some cash to shareholders. If Iliad’s offer is not good enough, she should find one that is.
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