October 29, 2015 / 11:10 AM / in 3 years

Iliad founder Xavier Niel buys Telecom Italia stake

PARIS/MILAN (Reuters) - Telecoms tycoon Xavier Niel has become the second-largest shareholder in Telecom Italia (TLIT.MI) behind Vincent Bollore’s Vivendi (VIV.PA), giving two French billionaires sway over the future of Italy’s biggest carrier.

Xavier Niel, founder of French broadband Internet provider Iliad, visits the 42 school campus in Paris, France, October 27, 2015. REUTERS/Benoit Tessier

Niel, the 48-year old founder of low-cost French mobile operator Iliad (ILD.PA), holds the equivalent of an 11.2 percent voting stake in Telecom Italia, according to a regulatory filing, bought through derivatives and options.

Niel’s surprise arrival at Telecom Italia sent shares up as much as 11 percent to highs not seen since mid-2008, before paring back gains to close up 9 percent.

The move opens a new chapter at heavily indebted Telecom Italia, which until earlier this year was controlled by Spain’s Telefonica (TEF.MC) and a group of Italian financial institutions.

The company has been seen by bankers and sector executives as a takeover target as telecoms consolidation picks up because of its smaller size - it is present only in its home market and Brazil - as well as the untapped potential of the Italian market where it faces no competition from cable operators.

Vivendi, chaired by corporate raider Bollore, arrived in Italy in May when it agreed to sell to Telefonica a Brazilian broadband business and be paid partly with an 8.3 percent stake in Telecom Italia.

Since then the European media company has added to its position to hold 20.3 percent of the Italian incumbent.

It remains to be seen how Niel’s investment will be received by Rome, which has to date welcomed Vivendi’s presence at Telecom Italia. Bollore is well-known in Italian business and political circles since he has been a long-time shareholder of influential investment bank Mediobanca (MDBI.MI).

Niel may not be well known outside France but is a prominent figure in European telecoms, known for cannily surfing a wave of deregulation to build Iliad into a low-cost, high-tech mobile and broadband operator now worth 11 billion euros.

Guy Peddy of Macquarie Research, who has a sell rating on Telecom Italia, said it would be interesting to see how Vivendi and Niel would handle being investors in the same company.

    “We don’t know whether they’ll be working in concert or not, whether it’s opportunistic and what the underlying reason for it is,” he said.

    “I don’t see why they would work against one another since they are acting as investors and their goal is to see their share take value.”

    Italy’s markets watchdog Consob is looking into whether Niel and Vivendi are acting in concert, a source at the regulator told Reuters, since if they had it could trigger a mandatory takeover offer.

    Under local rules, any shareholder with more than 25 percent of the capital has to make a bid for whole company.

    Niel has also bought mobile operations in Switzerland and Monaco in recent years via his personal holding company. Based on the market value at Wednesday’s close, an 11.2 percent voting stake in Telecom Italia is worth 2.4 billion euros.

    For its part, Vivendi has said it intends to be a long-term shareholder of Telecom Italia and sees the investment as a way to get better distribution of its media and television content. Under Bollore, the company has exited telecoms businesses and sought to refocus on becoming a media powerhouse.

    Vivendi could respond by buying additional shares in Telecom Italia, said one person close to the matter, but has not yet decided to do so. The person said Vivendi believes that it is better positioned than Niel to work with Telecom Italia since not only does it have deeper pockets to raise its stake, but it can offer the telecoms group support in content and services, which Niel cannot.

    Niel and Vivendi declined to comment. Telecom Italia Chief Executive Marco Patuano said he had no contact with Niel and was not aware of the investment before it was disclosed. “Personally I don’t believe they form a single front or there is any link between them,” Patuano told reporters.

    A spokesman for Iliad said neither Iliad nor its subsidiaries held shares or voting rights in Telecom Italia, either directly or indirectly.

    Bloomberg first reported Niel’s investment in Telecom Italia.

    Additional reporting by Joseph Sotinel, Alexandre Boksenbaum Granier and Gianluca Semeraro, editing by Andrew Callus, Jason Neely and Adrian Croft

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