French telecoms magnate Xavier Niel was seen as something of a white knight when he arrived in Ireland in 2017 with a pitch to take control of Eir.
After going through a series of six ownership changes in less than two decades – and a stint at the mercy of the High Court after filing the State's largest-ever examinership filing in 2012 – Niel offered Eir a safe and secure home. He used two companies, his private NJJ investment vehicle and Paris-listed phone company Iliad, to buy a combined 64.5 per cent stake in the former monopolist, completed last April.
Since then, much has changed. Iliad, which has an option to increase its 31.6 per cent Eir stake to almost 59 per cent in 2024 by buying out most of NJJ’s shares, has seen its owns share price slump by more than half since the deal was struck.
The stock in Paris wobbled again early this week when Iliad reported that revenues in its core market of France fell by 5 per cent in the fourth quarter. More worryingly, it had lost about 250,000 mobile subscribers and 93,000 broadband customers over the course of last year.
Iliad, which upended the French mobile market in 2012 when its Free mobile brand offered unlimited calls and data for €19.99 a month as others were charging as much as €65 for similar package, is now being beaten at its own game. Rivals such as Altice's SFR and Bouygues have fought back with aggressive price deals, hampering Iliad's big plan to eventually move its customers on to more expensive plans.
Italian network
At a time when Iliad is having to invest heavily in faster fibre broadband in France and is preparing to bid in the country’s fifth-generation (5G) telecoms frequencies auctions later this year, the group is also committing hundreds of millions of euro to build from scratch a mobile network in the fiercely competitive, and slowing, Italian market.
The company ripped through €1.44 billion in cash last year, twice as much as 2017, and has pushed its target of achieving €1 billion of cash flow by one year, to 2021. Its net debt has shot up to 2.3 times earnings before interest, tax, depreciation and amortisation (ebitda) from 1.4 in the space of a year.
In order to raise money, the group signalled this week that it had “begun a process to review its mobile assets and is currently exploring a possibility of forming an industrial partnership with an investment fund for its passive mobile infrastructure, concerning approximately 5,700 mobile sites”.
Analysts reckon the towers will be able to fetch more than €1 billion.
Iliad’s full-year profits fell by 18.5 per cent to €330 million, driven mainly by Italian losses and a €25 million shortfall racked up from its stake in Eir. The French company stumped up €316 million last April for its equity position in Eir, which went on during the same quarter to book a €87 million exceptional charge, including the costs of a redundancy programme, costs relating to the deal, and €8 million for a management incentive plan.
Iliad's chief executive, Maxime Lombardini, said 12 months ago that Eir may start paying a regular dividend as soon as this year. The pressure to commence this has surely increased, even as it is in the early stages of a €1 billion investment programme in a high-speed broadband network over five years.
Share price fall
When it first emerged in September 2017 that Niel was making a run for Eir, Iliad’s share price was enjoying a bull run – having surged 80 per cent over the previous five years as the company mopped up market share in France. The value of the Paris-listed company has since dropped by 55 per cent amid fears that it has run out of steam.
It’s hard to imagine that Iliad would make the Eir investment today, given the issues in its main business. With asset sales now on the agenda, it may raise questions about the company’s Irish investment – and the call option to up its Eir stake to a majority interest in five years’ time.
In the background there has been lingering talk – first ignited by analysts in Franco-German stockbrokers Oddo late last year – that Niel may engineer a debt-funded buyout of Iliad on his own, or possibly in partnership with a private-equity group such as KKR. He joined the New York buyout firm last March as a non-executive director.
This week, Guy Peddy, an analyst in London with Australian financial group Macquarie, further stoked such speculation, saying Iliad may be more suited to private investors than the public equity markets, as it is at an "early stage in the network investment cycle".
Followers of Eir’s recent history remember all too well what private-equity ownership usually means: a loading up of the acquired company with fresh debt to fund special dividends. And at the expense of investment.
Eir’s odyssey may well face another twist in the hands of Iliad.
