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Iliad makes surprise bid for T-Mobile USA

Disruptive French carrier looks to transfer its havoc across the pond, should spur Sprint into action


Published: 31 July, 2014


If the US carriers thought John Legere's rejuvenated T-Mobile USA was uncomfortably disruptive, they may quake at the idea of it joining forces with Iliad of France, whose Free Mobile arm has wreaked havoc on the established French cellcos. But this is now a possibility, with Iliad having mounted a surprise $15bn cash bid for a controlling stake in the fourth US operator.

Few had foreseen a second suitor jumping into the fray at this stage, and the markets were just waiting for Softbank-controlled Sprint finally to make its long-awaited bid. Softbank is said to be putting together financing, and wooing regulators, for an offer of about $40 a share for TMo, which would value it at about $32bn and would be well above Iliad's $33 a share.

TMo's own controlling stakeholder, Deutsche Telekom, considers the French offer uncompetitive to the likely Sprint proposal, sources told the Wall Street Journal, but of course, Iliad may up its offer, and it will certainly not face the same regulatory hurdles as Sprint, as it would maintain four national cellcos in the US. This is expected to be a key sticking point in any antitrust review, though Softbank argues that a merger would create stronger competition for AT&T and Verizon, and that the landscape has changed anyway with the advent of cable WiFi and the possible entry of Dish.

A rival bidder will at least put pressure on Softbank to finalize its plans, and that could pit two maverick telecoms billionaires against one another - Masayoshi Son, head of Softbank, and Xavier Niel, founder of Iliad, both of whom now seem to be eyeing expansion in the US. Both have experience of shaking up staid home markets, Softbank when it acquired Vodafone Japan and quickly became a far more powerful third player and challenger to NTT Docomo and KDDI; Iliad when it built a low cost 3G offering around Free Mobile, leveraging its existing home broadband and WiFi installations and some aggressive service bundling.

Jan Dawson, an analyst with Jackdaw Research, told Bloomberg: "With another potential bidder, Sprint may not be able to wait this out. It probably forces them to act faster and could raise the price they were willing to pay."

Iliad's cash offer would be financed with debt and equity, and values the remaining portion of TMo at $40.50 a share based on $10bn in potential savings, to be shared between the two firms, Iliad said. It would be a far bolder move than its offer, earlier this year, to pay €5bn for home rival Bouygues Telecom (which is still seeking a higher bid, sources say). But a US adventure could distract the company from its tough domestic market, where its activities have forced the three larger carriers to make drastic cost cuts and seek mergers.

Many analysts were sceptical about the value for Iliad, pointing to the mixed results European operators have often had in the US, and Deutsche Telekom's own eagerness to exit. Jonathan Chaplin of New Street Research reflected the view of many when he commented: "Iliad is about a third of the size of T-Mobile US, and we don't think there would be synergies from the deal. It would be tough to finance without Xavier Neil relinquishing control. Sprint and anyone else with synergies should be able to outbid them." But, of course, not necessarily to out-argue them with the regulators.

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