Iliad’s Niel Harnesses Billionaire Heft to Muscle Into Deals

Xavier Niel, the founder of French mobile and broadband provider Iliad SA, has made a second career backing startups with uncertain prospects. Now he’s ready to apply those skills to Europe’s beleaguered phone companies.

As his net worth reaches $8.1 billion, Niel is assessing deals for telecommunications operators in the region, people familiar with his thinking said. Among targets he’s recently examined for Iliad to join forces with, or to take a stake in himself: SFR and Bouygues Telecom, France’s second- and third-biggest wireless carriers, and Mobistar, the Belgian operator controlled by Orange SA, the people said, asking not to be identified discussing a private matter.

The 46-year-old, one of Europe’s most active venture-capital investors, is trying to muscle into the league of billionaires including Carlos Slim and Li Ka-shing, who have been enticed by the cheap valuations of the region’s phone companies relative to the U.S. While most operators in Europe have struggled to pull through a stagnant market, Iliad shares doubled in the past two years for a market value of $14 billion, giving its founder the currency for a bigger deal.

“I’m always investing,” Niel said in an interview this month as he sat in front of a panoramic view of Paris atop Iliad’s headquarters. “I’m constantly in talks with someone about some opportunity. You just don’t hear about most of my discussions.”

Orange Overture

Working with Goldman Sachs Group Inc.’s private-equity arm, Niel reached the final round of bidding in 2011 for mobile operator Orange Switzerland, people familiar with the matter said at the time. The Orange division was sold to Apax Partners LLP for about $2 billion. He also considered buying Royal KPN NV’s Belgian unit, BASE, before the Dutch owner canceled the sale.

In France, Iliad’s Free phone brand pioneered so-called triple-play packages combining TV, landline, and Internet services. Free added mobile services in January 2012, and with tariffs as low as 2 euros ($2.75) a month and heavy cross-selling of wireless and home plans, wrested a 10.3 percent market share -- 6.8 million customers -- in 18 months. By June, it has reached 5.5 million fixed-broadband subscribers. Orange had 10 million.

Office Naps

The strategy Niel used to disrupt France’s communications market is being emulated elsewhere. Dutch broadband provider Ziggo NV is challenging incumbent KPN and Vodafone Group Plc locally with discount Internet and mobile packages. And Niel co-founded an Israeli operator, Golan Telecom, that follows a similar model.

Niel has built his reputation on doing things outside the norm. While he’s France’s seventh richest man, according to the Bloomberg Billionaires Index, his shaggy hair, and uniform of jeans and open-necked shirts make him stand out in the staid telecom world. He doesn’t have an assistant, a separate office or a chauffeur, prefers e-mails to meetings and says he sees no reason why working at 3:00 a.m. or napping at the office in the afternoon shouldn’t be routine.

“Niel’s got a track record in France which would justify him trying to duplicate Iliad’s success in another market, and there are assets for sale in Europe,” said Stephane Beyazian, a London-based analyst at Raymond James Euro Equities.

Within France, Iliad “will be looking at possible consolidation but it’s very tough, because the regulator is opposed” to deals that could reduce competition, said Francois Godard, who specializes in European telecom at Enders Analysis.

Rebuffed Recently

Niel’s interest in SFR, which is being spun off by media conglomerate Vivendi SA, was rebuffed by French regulators, while Bouygues Telecom’s owner, the Bouygues SA industrial group, isn’t interested in selling for now, two of the people said. He remains interested in future tie-ups with both companies, one of the people said.

Representatives at SFR, Orange and Bouygues Telecom declined to comment on Niel’s interest in the carriers.

Iliad fell 1 percent to close at 168.20 euros in Paris. Orange dropped 2 percent, Vivendi slipped 1.1 percent and Bouygues SA lost 0.4 percent.

European phone companies are valued at 13.9 times their estimated full-year earnings, compared with 18.5 times for U.S. peers, data compiled by Bloomberg for the S&P 500 and Stoxx Europe 600 telecom indexes show. That gap is narrowing after investors in August began valuing European firms more highly, helped by a flow of deals and interest from international buyers.

Slim, Sawiris

Slim, John Malone of the U.S., and Egypt’s Naguib Sawiris are among billionaires who have held talks in the past year to invest in European carriers. Slim’s America Movil SAB bought into KPN last year and offered to buy all of it before dropping the plan. AT&T Inc. has eyed assets including EE, the U.K. wireless company co-owned by Orange and Deutsche Telekom AG, as well as Vodafone, which has operations in 21 countries.

Carriers on the block in Europe may include VimpelCom Ltd.’s Wind unit in Italy, Spain’s Yoigo, and Stockholm-based Tele2 AB. Jazztel Plc in Spain or TalkTalk Telecom Group Plc in the U.K. could be good fits for Niel, according to Beyazian of Raymond James.

“Iliad historically hasn’t done much M&A -- there are reasons for that,” Beyazian said. “For Niel to make a deal, you’d definitely need attractive valuations and, just as important, a DNA similar to Iliad’s.”

Deezer, Square

Iliad’s approach has its critics, with competitors Orange - - formerly known as France Telecom -- and Vivendi arguing Free’s mobile prices are unsustainable. The company also faces the slow, expensive task of building its own high-speed wireless network, which could force it to raise prices.

That’s not slowing Niel’s venture-capital activities, which stretch from minority stakes in U.S. mobile-payments company Square and online music-streaming startup Deezer to co-ownership of French newspaper Le Monde. Niel sold about 310 million euros in Iliad shares last month, adding to his personal resources.

Niel -- who got started running sex-chat services on Minitel, France’s precursor to the World Wide Web -- is also investing in the next generation of entrepreneurs. He’s put money this year into a Paris school, dubbed “42” in reference to Douglas Adams’s comic science-fiction series “The Hitchhiker’s Guide to the Galaxy,” in which 42 is the answer to life, the universe and everything.

At the school, young adults train for jobs in Internet and technology companies as well as entrepreneurship.

Niel is also the biggest investor in a plan to build a 30,000 square-meter (323,000 square feet) workspace in Paris to host start-ups by 2016.

“We need to create an ecosystem which will make young people want to start their own company,” Niel said. “I’d rather people talked about the 1,000 most successful French Internet companies instead of the 5 or 10 faces we already know -- including mine.”

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