Iliad Closes In on $1.3B Acquisition

French operator Iliad (Euronext: ILD) is closing in on an €800 million ($1.27 billion) acquisition of Telecom Italia (TIM) 's French broadband business, Liberty Surf Group SAS (aka Alice France).

Iliad, which has had a major success with its broadband operator Free , and Telecom Italia announced Monday that they're engaged in exclusive acquisition negotiations. (See Iliad in TI Talks.)

That means the other hopeful bidders, including key Iliad rival Neuf Cegetel Group (Euronext: NEUF) and cable group Numericable-SFR , have likely missed out on the Italian carrier's assets. (See Alice Attracts Suitors.)

The move signifies Iliad's desire to further bulk up its French broadband customer base of 3 million, and regain the No. 2 market position currently held by Neuf Cegetel. Incumbent Orange (NYSE: FTE) is the French broadband market leader.

Buying Alice France would add more than 1 million customers to Iliad's business, with nearly all of those, 954,000 (end of March 2008), being broadband customers. Together, Free and Alice France had almost 4 million DSL customers at the end of March 2008, a combined market share of 25.9 percent.

France Telecom is the market leader with a 49.4 percent DSL market share (7.6 million customers), while Neuf Cegetel is the No. 2 broadband player with nearly 3.3 million DSL customers (21.4 percent market share). Iliad and Neuf have been battling for second place in the rankings in the past few years, with Neuf, which is in the process of being acquired, holding that position thanks to some acquisitions of its own. (See SFR to Swallow Neuf in $6.4B Deal and Neuf Makes Acquisitions Count.)

The €800 million price tag is slightly higher than expected, but analysts at Dresdner Kleinwort believe there "should be plenty of synergy benefits from this deal," enabling Iliad to outbid the other interested buyers.

Iliad's share price is up 0.6 percent today at €63.00 following the news announcement.

France is one of Europe's most competitive broadband markets, with all the major players offering triple play packages and planning to upgrade to fiber-to-the-home connections. (See French Carriers Ramp Up IPTV Subs, FT Makes FTTx Proposals, Neuf Kicks On With FTTH Plan, and Iliad Tempers Its FTTH Target.)

But the market has proved too fierce for Telecom Italia, which, under new ownership, has decided to concentrate on its domestic and emerging market growth potential. (See Telecom Italia Eyes Emerging Markets.)

The Italian incumbent, encouraged by its broadband success in Germany (where it is retaining its triple play business), signaled its intention to be a significant player in the French DSL market in April 2005, when it acquired Liberty Surf for €266 million and announced a major investment plan. (See Eurobites: Incumbents Splash Their Cash and Italians Prep Big French DSL Rollout.)

Now Iliad looks set to take on that business and leave French broadband consumers with one less service provider to consider.

— Ray Le Maistre, International News Editor, Light Reading

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