Vodafone shares surge after Iliad proposes $11.4 billion merger of Italian units

United States

Vodafone VOD, +5.84% shares surged on Monday after French telecoms company Iliad submitted proposals to merge its Italy operations with the British firm’s own struggling Italian business, in a deal worth €10.45 billion ($ 11.4 billion).

Vodafone Italia will be merged into the new company – dubbed NewCo – as its parent company has struggled to boost the Italian unit’s performance amid a price war in the country’s phone market.

Shares in Vodafone surged 7% on Monday, having lost 20% of their value over the previous 12 months.

Under the proposals, Iliad, which is majority owned by French billionaire Xavier Niel, would pay Vodafone €6.5 billion in cash and give it a further €2 billion in shareholder loans. Vodafone shareholders would also be given a 50% stake in NewCo.

Deutsche Bank analysts led by Robert Grindle said Iliad’s proposals represent “a tangible offer” in valuing Vodafone Italia at €10.45 billion. 

Vodafone signaled it is open to a possible deal. In a statement on Monday, the company said it “is supportive of in-market consolidation in countries where it is not achieving appropriate returns on invested capital and confirms it is exploring options with several parties to achieve this in Italy, including through a merger or a disposal.” 

Iliad said NewCo would become a “leading actor for investment in cutting-edge technology” in the Italian telecoms market due to Iliad’s “innovative approach to connectivity, affordability, and digital inclusivity as well as the expertise of Vodafone in B2B.” 

The Paris headquartered company, which is majority owned by French billionaire Xavier Niel, has played a major part in fueling price competition in Italy’s phone market after first entering the country in 2018. 

Iliad’s offer comes as Italy is currently pushing forwards with major efforts to upgrade its telecoms network by installing high-speed fiber optics networks, in line with goals set by the European Union.

“NewCo would be fully committed to accelerating the country’s digital transformation and especially fiber adoption and 5G deployment, with more than €4 billon of investment planned over the next 5 years,” said Iliad CEO Thomas Reynaud.

Vodafone had previously signaled openness to selling off its troubled Italian unit, which accounts for 11% of group-wide service revenues. 

Successful turnarounds across the rest of Vodafone’s business under new CEO Margherita Della Valle have left Vodafone Italia as the only segment of the British firm’s business that is currently shrinking, following a successful turnaround in Germany. 

In November, Della Valle told reporters that Vodafone was “considering a range of options” for its Italian unit amid rumors in Italian newspaper Il Sole that it was considering selling the business.