Interesting Article on European Telecom...Restructration is coming...
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Iliad’s Niel Harnesses Billionaire Heft to Muscle Into Deals (1)
2013-10-30 08:14:56.495 GMT
(Updates with stock trading in 13th paragraph.)
By Marie Mawad and Matthew Campbell
Oct. 30 (Bloomberg) -- Xavier Niel, the founder of French
mobile and broadband provider Iliad SA, has made a second career
backing startups with uncertain prospects. Now he’s ready to
apply those skills to Europe’s beleaguered phone companies.
As his net worth reaches $8.1 billion, Niel is assessing
deals for telecommunications operators in the region, people
familiar with his thinking said. Among targets he’s recently
examined for Iliad to join forces with, or to take a stake in
himself: SFR and Bouygues Telecom, France’s second- and third-
biggest wireless carriers, and Mobistar, the Belgian operator
controlled by Orange SA, the people said, asking not to be
identified discussing a private matter.
The 46-year-old, one of Europe’s most active venture-
capital investors, is trying to muscle into the league of
billionaires including Carlos Slim and Li Ka-shing, who have
been enticed by the cheap valuations of the region’s phone
companies relative to the U.S. While most operators in Europe
have struggled to pull through a stagnant market, Iliad shares
doubled in the past two years for a market value of $14 billion,
giving its founder the currency for a bigger deal.
“I’m always investing,” Niel said in an interview this
month as he sat in front of a panoramic view of Paris atop
Iliad’s headquarters. “I’m constantly in talks with someone
about some opportunity. You just don’t hear about most of my
discussions.”
Orange Overture
Working with Goldman Sachs Group Inc.’s private-equity arm,
Niel reached the final round of bidding in 2011 for mobile
operator Orange Switzerland, people familiar with the matter
said at the time. The Orange division was sold to Apax Partners
LLP for about $2 billion. He also considered buying Royal KPN
NV’s Belgian unit, BASE, before the Dutch owner canceled the
sale.
In France, Iliad’s Free phone brand pioneered so-called
triple-play packages combining TV, landline, and Internet
services. Free added mobile services in January 2012, and with
tariffs as low as 2 euros ($2.75) a month and heavy cross-
selling of wireless and home plans, wrested a 10.3 percent
market share -- 6.8 million customers -- in 18 months. By June,
it has reached 5.5 million fixed-broadband subscribers. Orange
had 10 million.
Office Naps
The strategy Niel used to disrupt France’s communications
market is being emulated elsewhere. Dutch broadband provider
Ziggo NV is challenging incumbent KPN and Vodafone Group Plc
locally with discount Internet and mobile packages. And Niel co-
founded an Israeli operator, Golan Telecom, that follows a
similar model.
Niel has built his reputation on doing things outside the
norm. While he’s France’s seventh richest man, according to the
Bloomberg Billionaires Index, his shaggy hair, and uniform of
jeans and open-necked shirts make him stand out in the staid
telecom world. He doesn’t have an assistant, a separate office
or a chauffeur, prefers e-mails to meetings and says he sees no
reason why working at 3:00 a.m. or napping at the office in the
afternoon shouldn’t be routine.
“Niel’s got a track record in France which would justify
him trying to duplicate Iliad’s success in another market, and
there are assets for sale in Europe,” said Stephane Beyazian, a
London-based analyst at Raymond James Euro Equities.
Within France, Iliad “will be looking at possible
consolidation but it’s very tough, because the regulator is
opposed” to deals that could reduce competition, said Francois
Godard, who specializes in European telecom at Enders Analysis.
Rebuffed Recently
Niel’s interest in SFR, which is being spun off by media
conglomerate Vivendi SA, was rebuffed by French regulators,
while Bouygues Telecom’s owner, the Bouygues SA industrial
group, isn’t interested in selling for now, two of the people
said. He remains interested in future tie-ups with both
companies, one of the people said.
Representatives at SFR and Orange declined to comment on
Niel’s interest in the carriers. An official at Bouygues Telecom
couldn’t be reached after regular office hours.
Iliad climbed 0.5 percent to 170.80 euros at 9:11 a.m. in
Paris. Orange fell 0.7 percent, Vivendi slipped 0.2 percent and
Bouygues added 0.2 percent.
European phone companies are valued at 13.9 times their
estimates full-year earnings, compared with 18.5 times for U.S.
peers, data compiled by Bloomberg for the S&P 500 and Stoxx
Europe 600 telecom indexes show. That gap is narrowing after
investors in August began valuing European firms more highly,
helped by a flow of deals and interest from international
buyers.
Slim, Sawiris
Slim, John Malone of the U.S., and Egypt’s Naguib Sawiris
are among billionaires who have held talks in the past year to
invest in European carriers. Slim’s America Movil SAB bought
into KPN last year and offered to buy all of it before dropping
the plan. AT&T Inc. has eyed assets including EE, the U.K.
wireless company co-owned by Orange and Deutsche Telekom AG, as
well as Vodafone, which has operations in 21 countries.
Carriers on the block in Europe may include VimpelCom
Ltd.’s Wind unit in Italy, Spain’s Yoigo, and Stockholm-based
Tele2 AB. Jazztel Plc in Spain or TalkTalk Telecom Group Plc in
the U.K. could be good fits for Niel, according to Beyazian of
Raymond James.
“Iliad historically hasn’t done much M&A -- there are
reasons for that,” Beyazian said. “For Niel to make a deal,
you’d definitely need attractive valuations and, just as
important, a DNA similar to Iliad’s.”
Deezer, Square
Iliad’s approach has its critics, with competitors Orange -
- formerly known as France Telecom -- and Vivendi arguing Free’s
mobile prices are unsustainable. The company also faces the
slow, expensive task of building its own high-speed wireless
network, which could force it to raise prices.
That’s not slowing Niel’s venture-capital activities, which
stretch from minority stakes in U.S. mobile-payments company
Square and online music-streaming startup Deezer to co-ownership
of French newspaper Le Monde. Niel sold about 310 million euros
in Iliad shares last month, adding to his personal resources.
Niel -- who got started running sex-chat services on
Minitel, France’s precursor to the World Wide Web -- is also
investing in the next generation of entrepreneurs. He’s put
money this year into a Paris school, dubbed “42” in reference
to Douglas Adams’s comic science-fiction series “The
Hitchhiker’s Guide to the Galaxy,” in which 42 is the answer to
life, the universe and everything.
At the school, young adults train for jobs in Internet and
technology companies as well as entrepreneurship.
Niel is also the biggest investor in a plan to build a
30,000 square-meter (323,000 square feet) workspace in Paris to
host start-ups by 2016.
“We need to create an ecosystem which will make young
people want to start their own company,” Niel said. “I’d
rather people talked about the 1,000 most successful French
Internet companies instead of the 5 or 10 faces we already know
-- including mine.”
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--With assistance from Vidya Root in Paris. Editors: Heather
Smith, Kenneth Wong
To contact the reporters on this story:
Marie Mawad in Paris at +33-1-5530-6290 or
mmawad1@bloomberg.net;
Matthew Campbell in London at +44-20-3525-8684 or
mcampbell39@bloomberg.net
To contact the editors responsible for this story:
Kenneth Wong at +49-30-70010-6215 or
kwong11@bloomberg.net;
Aaron Kirchfeld at +44-20-3525-8830 or
akirchfeld@bloomberg.net