Iliad Shares Leap After Failure To Win U.S. Mobile Prize


Relieved investors sent shares in French low-cost telecom operator Iliad (ILD.PA) up 11 percent on Tuesday after it abandoned an effort to buy the fourth-largest U.S. carrier T-Mobile.

Backed by billionaire founder Xavier Niel, Iliad made an initial bid worth $15 billion and then raised it further, but was rebuffed by T-Mobile US' (TMUS.N) parent company, Deutsche Telekom (DTEGn.DE). Sources told Reuters Deutsche Telekom was unconvinced by the price and by Niel's ability to run the business better than its own managers could.

The aborted U.S. foray is seen favorably by Iliad investors because many would prefer Niel focus on organic growth at home and pursue mobile consolidation by reviving talks with struggling number three mobile player Bouygues (BOUY.PA).

Bouygues shares rallied 3.9 percent at 0859 GMT (4.59 a.m. EDT). Shares of market leader Orange (ORAN.PA) also rose 1.4 percent since it would benefit along with rivals from a consolidation that could calm tough price competition.

“Now that Iliad has abandoned the U.S. deal, we think it likely that French consolidation hopes will return,” wrote Berenberg analysts in a note.

“On our estimates, and in our very conservative M&A scenario, if Iliad pays 8 billion euros to acquire Bouygues Telecom, the deal would remain accretive to its shareholders - without taking into account the possible upside from market repair.”

Analysts at banks Kepler, Natixis, RBC and UBC upgraded ratings on Iliad. The volume of Iliad shares changing hands was at 75 percent of the daily average in the past three months.

Iliad's arrival on the mobile scene in January 2012 sparked a price war that has increased the pressure to consolidate. Mobile prices fell 27 percent last year and 11 percent in 2012, according to the telecoms regulator.

Beyond deal hopes, Iliad does face some headwinds in France. Rivals offer faster 4G mobile broadband speeds, and price erosion is hitting its broadband business, said Stephane Beyazian, an analyst at Raymond James.

Bouygues has undercut Iliad's broadband prices with a stripped down 19.99 euro per month TV, fixed phone and Internet offer, and has been gaining clients as a result. Iliad's share of broadband customer additions last quarter was about 21 percent, its lowest point since late 2011, according to the analyst.

Iliad is also racing to build out its mobile network to meet a regulatory requirement to cover 75 percent of the French population by Jan. 12, 2015. It now pays Orange to carry much of its customers traffic.

Nevertheless Beyazian said these risks are priced in at Iliad's current share levels.

Harder to quantify is whether investors will begin to apply a discount to Iliad shares to reflect the risk that founder Niel, who owns 55.35 percent of the company, will turn to other large deals in foreign markets.

“We apply a relatively small discount of 10 percent reflecting only a mild level of worry on our side,” wrote Exane BNP Paribas in a note on Friday, adding that abandoning the T-Mobile deal would show financial discipline on Iliad's part.

“Iliad would not be in a hurry to find another acquisition, since [it expects] a number of years of good growth in France.”

In a statement on Monday, Iliad said only that it would pursue “its profitable growth policy… in the interest of its subscribers, employees and shareholders.”