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Xavier Niel tightens grip on Iliad with €1.4bn buyback

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Via Financial Times

Iliad founder Xavier Niel will finance a €1.4bn buyback of a fifth of the French telecoms group’s share capital, increasing his stake and putting the stock on track for its biggest single-day rise since the company listed 15 years ago.

Iliad said it planned to repurchase about 11.7m shares on the open market at a price of €120 per share. This represents a premium of 38 per cent on the volume-weighted average price over the past three months and a level not seen since January.

However, it is a long way off Iliad’s all-time high of €238.70 in June 2014. The shares gained as much as a fifth in morning trading on Tuesday.

The transaction will tighten Mr Niel’s grip on the group, which shook up the French mobile market with its low-cost service Free, and marks a vote of confidence in Iliad by the telecoms entrepreneur.

His stake in Iliad could rise from just over 52 per cent to as much as 72 per cent, depending on the uptake of the share buyback by investors, according to Russell Waller, an analyst at New Street Research.

The transaction will be fully financed by a share issue at the same price, representing the same amount as the buyback offer, open to all Iliad shareholders and guaranteed by Mr Niel, who will not tender his own shares. The repurchased shares will be cancelled so Iliad’s total number of shares will remain unchanged.

“We think Xavier Niel is sending a very strong signal that he thinks the shares are undervalued,” Mr Waller said in a note on Tuesday.

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“Iliad denied . . . that they were thinking of taking the company private but given the market’s unwillingness to reward Iliad’s ‘good’ capex and long-term free cash flow return, this must surely have been considered in our view.”

Iliad burst on to the scene with Free mobile in 2012, launching a brutal price war with rivals Orange, Altice’s SFR and Bouygues that has eaten into its profitability.

The announcement comes as the telecoms group, which has roughly a fifth of the mobile market share in France, tries to turn round its performance after a difficult period. The group has faced shareholder concern about its commercial strategy, its ability to generate cash, an insider trading conviction for its chairman and a controversial pay scheme for its senior management.

After losing subscribers in recent months, Iliad on Tuesday reported better than expected results for the third quarter. It gained 32,000 net new broadband subscribers in France during the three months, boosted by its fibre business. Overall Iliad had 19.72m total subscribers in France at the end of the third quarter, slightly ahead of analysts’ estimates of 19.68m, according to a company-compiled consensus.

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