Business

Eir co-owner Iliad holds off on triggering option to take control

Iliad has had a right since the start of this year to increase its stake in Eir to almost 58%

Iliad acquired just over 31% of Eir six years ago next month. Photograph Nick Bradshaw

Joe Brennan
Wed Mar 27 2024 - 06:00

French telecoms billionaire Xavier Niel’s Iliad Group has no immediate plans to exercise an option to take a controlling stake in Eir, according to a spokesman for the company.

Taking control of the company would increase the debt burden of the wider Iliad Group, which was listed in Paris before Mr Neil took it private in late 2021.

Iliad acquired a 31.6 per cent stake in Eir six years ago next month, while Mr Niel’s family office NJJ acquired a further 32.9 per cent stake as they shared the cost of a deal that valued Eir at €1 billion at the time.

Iliad has a so-called call option that entitles it to acquire 80 per cent of NJJ’s stake between this year and next at a price equating to a 12.5 per cent discount to Eir’s fair market value. It would increase the stake to almost 58 per cent.

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Iliad valued the option at €90 million at the end of December, up from €37 million a year earlier. However, corporate financiers and accounting sources cautioned against using the balance sheet valuation of the option to extrapolate an equity value for Eir.

A spokesman for Iliad said that the company will not exercise the call option this year. “We will revisit the call in 2025,” he added.

Eir’s €2.69 billion of net debt at the end of last year equated to 4.4 times its earnings before interest, tax, depreciation and amortisation (Ebitda) for the full year. The holding company over Iliad has worked on lowering its debt burden over the past two years to 3.9 times from 4.6. Iliad would have to consolidate Eir’s debt in the event of taking a majority stake.

The hold-off on a decision on whether to trigger the Eir call option comes at a time when Iliad’s board has been frustrated by having seen two merger offers for Vodafone’s Italian unit rejected. The second, sweetened bid valued Vodafone Italia at €10.4 billion. It was turned down in late January when Vodafone accepted an €8 billion takeover offer from Swisscom, saying it was a simpler deal and was less likely to be held up by regulators.

Eir reported earlier this month that its revenue rose 4 per cent last year, nearing €1.3 billion as broadband and postpay mobile customers grew. However, Ebitda fell 3 per cent to €591 million as costs rose 3 per cent to €399 million. The increase in costs was more marked in the final quarter, rising 8 per cent as non-pay costs including accommodation increased.

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Its fibre broadband customer base rose 3 per cent to 869,000, with its postpay customer base rising 12 per cent year on year to more than 1.1 million. In total, Eir has more than 1.4 million mobile customers, an 8 per cent increase, with 77 per cent of those paying subscriptions each month and the remainder on prepay.

Eir has distributed almost €2 billion to shareholders since Mr Neil’s two companies, NJJ and Iliad, acquired 64.5 per cent of the group in April 2018.

The remainder of Eir is owned by US hedge funds Anchorage and Davidson Kempner, which sold part of their existing holdings as Mr Niel’s NJJ investment vehicle and his Iliad telecoms business took the controlling stake.

Eir paid €237 million in dividends to the three investors last year, following €800 million of distributions in 2022.

Debt ratings agency Moody’s said last month it expects Eir to scale back annual dividends to between €100 million and €150 million for this year and next.

That will equate to all of the free cash flow — the money left over after running costs and investment — that the company will generate over the period. Still, it is expected that its free cash flow will rise thereafter as Eir comes to the end of its big fibre roll-out programme.

Joe Brennan

Joe Brennan

Joe Brennan is Markets Correspondent of The Irish Times

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