Billionaire Niel’s French Focus Rebuilds Investor Trust in Iliad

Iliad SA owner Xavier Niel should stick to France, as far as investors are concerned.

Niel, the billionaire who has upended the French telecommunications market with low-priced packages, yesterday scrapped a plan to spend almost $18 billion to acquire a controlling stake in T-Mobile US Inc. Iliad rose as much as 15 percent in Paris, and analysts at UBS AG, Natixis SA and RBC Capital Markets increased the company’s ratings today.

That’s after Iliad had lost 24 percent since Niel announced his interest in T-Mobile on July 31, cutting his company’s market value by almost $4 billion -- an amount that was said to be the valuation gap that stymied negotiations with Bouygues SA to merge France’s third- and fourth-largest wireless carriers earlier this year.

Abandoning his U.S. pursuit means Niel may look to his home market for consolidation opportunities, investors and analysts said. Shares of Bouygues, owner of Iliad rival Bouygues Telecom, gained as much as 5.8 percent today.

“The pursuit of T-Mobile US came out of the blue at a time when French consolidation was expected,” said Paul Wild, a fund manager at JO Hambro Capital Management in London, who owns Iliad shares. “Hopefully domestic consolidation returns to the fore.”

Iliad shares climbed as much as 22.85 euros for their biggest gains in seven months. They traded 11 percent higher at 173.65 euros as of 12:13 p.m. in Paris. Deutsche Telekom, which owns about two thirds of T-Mobile, slipped 0.8 percent in Frankfurt. T-Mobile lost 2.5 percent in New York yesterday.

Relief Rally

“This should provide some relief to investors as this transaction was, in our view, widely seen as lacking any strategic rationale,” Nuno Matias, an analyst at Espirito Santo Investimento SA, said of T-Mobile. “Iliad would be better off pursuing opportunities in its domestic market.”

Before the U.S., Niel had sought to consolidate in France, where Iliad is the third-largest Internet provider and smallest among four mobile carriers.

Wassil El Hebil, an analyst at Berenberg, estimates that if Iliad pays 8 billion euros to acquire Bouygues Telecom, the transaction could still add to earnings.

Niel is unlikely to revisit a deal with Bouygues anytime soon, according to two people familiar with the matter, who asked not to be identified discussing private deliberations. Bouygues’s willingness to part with its phone unit isn’t clear, another person said.

Financing Clout

Representatives at Iliad and Bouygues, both based in Paris, declined to comment.

Still, through his U.S. attempt, Niel has demonstrated an ability to secure billions of dollars in financing within weeks. Iliad could gain support for seeking acquisitions outside of its home market, but only as long as French consolidation isn’t possible, said Stephane Beyazian, a London-based analyst at Raymond James. Beyazian values Bouygues Telecom at about 6 billion euros.

“Will there be an M&A risk discount?” Beyazian said. “Following the U.S. plan, some might view Iliad’s bold M&A moves as financially audacious.”