Iliad: the siege of T-Mobile Xavier Niel always said that Iliad, the French mobile carrier he founded, would one day have to invest in network infrastructure. He didn’t say that the infrastructure would be on the other side of the Atlantic. Yet Iliad on Thursday confirmed its offer for a 57 per cent stake in the US carrier T-Mobile.
The offer, at $33 a share, looks low. Wednesday’s price was $31. But it is well over December’s $25 price, which Iliad calls "unaffected" because it predates talk of a bid from Sprint. Much has happened since then. This interpretation of "unaffected" will be roundly rejected.
Iliad argues that the bid is, in total, worth $36, a 43 per cent premium to the putative unaffected price. It sees $10bn worth of synergies from the deal, which will make the value of the shares it doesn’t buy $40.50 (the market may disagree, of course – the shares will continue to trade). How might that value estimate work? Say $1.5bn in pre-tax savings can be found at T-Mobile after the deal; tax the savings at 35 per cent; capitalise them at the usual 10 times. There’s the $10bn. But if you spread that value over T-Mobile’s 813m shares, it comes to $12 a share, which does not quite close the gap between $25 and $40.50. So just how the figures work is unclear.
Then there is the question of where $1.5bn in savings – or anything near it – can be found at a company with a $26bn operating cost base. If this were a merger on a single country, perhaps. But this is a cross-border stake sale. And the lack of overlap means T-Mobile will always be worth more to Sprint.
Perhaps, though, Mr Neil’s thought process is simple. There is more profit in the US than in Europe; he knows how to run a lean operation to undercut rivals gone fat; and T-Mobile is the vehicle he needs to do it. The rest is detail. Fair enough, but to get what he wants he will have to fight much harder than this.