Don’t hang up. Iliad’s founder Xavier Niel is doing it again. Less than 24 months since first approaching Vodafone with a takeover offer for its Italian business, the French tycoon is seeking to lure the UK company’s new boss Margherita Della Valle into a fresh deal. Cutthroat competition and declining earnings in Italy make it hard to ignore the offer.

Niel’s latest bid values Vodafone Italy at 10.45 billion euros, just 8% less than the 11.25 billion euros he offered last year, when Nick Read ran the British telecoms operator. At 7.8 times the unit’s 2024 EBITDA after leases, the new bid beats the 7.1 times multiple implied from his previous offer. Yet this time Niel is using a familiar joint venture scheme to win over Della Valle. Under the plan, Vodafone and Iliad would hold 50% each in a new merged company, with Iliad’s Italian vehicle – valued by Breakingviews calculations at roughly 17 times its EBITDA after leases – being granted the option to buy more shares from Vodafone at a fixed price. To equalise the two businesses – which rank as Italy’s second and third largest mobile operators respectively by revenue – Vodafone would receive 6.5 billion euros in cash while Iliad would get 500 million euros from the new entity. The combined business would have a 4.5 times net debt to EBITDA after leases, similar to that of highly leveraged rival Telecom Italia. But the debt pile may decrease if Iliad’s turnaround plan, which envisages more than 600 million euros of annual savings, works out.

The deal is offering Vodafone a quick escape from its Italian woes. The unit’s EBITDA after leases has shrunk by around 15% over the past 12 months, dropping from 1.6 billion euros last year to 1.34 billion euros in 2023, according to a person familiar with the matter. Della Valle has flagged Italy as one of the three markets – along with Britain and Spain – where she may consider merging or selling assets to boost returns. After working to clinch deals with CK Hutchison’s Three UK and Zegona in Britain and Spain respectively, she might not want to miss a chance to exit Italy. The Italian-born boss has also been considering a tie-up with Swisscom’s broadband operator Fastweb, according to press reports. But that deal would give it more clout in the fixed-line business without alleviating cutthroat mobile competition.

For Della Valle, answering Niel’s fresh M&A call seems a sensible option.

Cutthroat competition and declining earnings in Italy make it hard to ignore the offer.

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