* News
Iliad announced that it terminated plans to buy T-Mobile US (TMUS) because TMUS’ majority shareholder Deutsche Telekom and other selected board members refused to entertain its new offer. Iliad had offered €33/share for 56.6% of the company, but stated that it had raised the equity proportion of its offer to c.67% (supported by two leading PE funds according to the company), with no material change to the price per share. Iliad said that it will "continue (its) profitable growth policy" going forward.
* Analysis
Overall, we view the announcement as positive as it raises the possibility of French consolidation in the near-term. We expect the share price reaction to be tempered by Iliad's recent statements that it would look at other similar deals in the future. Two key points: 1) French consolidation potential rises - we see 60% likelihood of French consolidation given the
attractiveness of consolidation for all French operators and the authorities. We argue Iliad walking away from TMUS increases the routes to consolidation as: a) Iliad can be a necessary participant in consolidation as the acquirer of Bouygues' network. This would be as part of regulatory concessions should another, larger French operator acquire Bouygues Telecom (a scenario possible even if Iliad had acquired TMUS in our view); and b) Iliad now has the financial flexibility to lead consolidation alone (which would not have been possible). 2) Future acquisitions cannot be ruled out - Iliad has stated that there is "no Plan B" target in the near- to medium-term if its TMUS offer were not accepted, but it would not rule out a similar move in the longer-term. We believe that while the acquisition of TMUS materially raised the risk profile of Iliad, it could be materially value accretive even without Iliad's planned cost efficiencies (on which there was
significant investor scepticism). For more details please see our note, NT uncertainty clouds LT value creation: Off CL, retain Buy, August 8, 2014.
* Implications
We remain Buy-rated, but put our price target under review.