French Tycoon To Take Control Of Eir

20 Dec 2017 | 09.03 am

French Tycoon To Take Control Of Eir

Xavier Niel has had colourful career

20 Dec 2017 | 09.03 am

NJJ Group, the private investment firm of telecoms investor and operator Xavier Niel, and French telco Iliad have acquired a majority stake in eir, Ireland’s largest telco, at an enterprise value of approximately €3.5 billion.

Eir is currently owned by an investor group including Anchorage Capital, GIC and  Davidson Kempner Capital Management, as well as company managers. The company had revenue of €1.3 billion in the year to June 2107 and booked an operating profit before interest payments of €520m.

After the deal goes through next year, NJJ will own 32.9% of eir and Iliad SA, which is listed on Euronext, will own 31.6%. In a presentation to investors, Iliad said its investment will amount to €320m. Iliad has been granted a call option by NJJ, exercisable in 2024, enabling Iliad to acquire 80% of NJJ’s stake in eir i.e. a further 26.3% of eir’s capital. at a 12.5% discount to fair value, as determined by an independent expert.

Both Iliad and NJJ are controlled by Xavier Niel. Eir shareholders Anchorage Capital Group and Davidson Kempner will retain a combined 35.5% share in the company, respectively 26.6% and 8.9%.

Iliad is the parent of Free, a French telco with 13.1 million mobile customer and 6.5 million  broadband customers.  The Freebox Revolution, the 6th generation of Freebox units, includes an NAS and a Blu-Ray drive. Free also offers the Freebox mini 4K, the first Android TV and 4K box on the French market. Free was the first operator to include calls from landlines to mobile phones in its offerings.

Freebox subscribers pay €16 per month for a mobile plan that includes roaming communications from more than 35 countries (unlimited calls, texts and MMS as well as 25GB/month of 3G mobile internet from these destinations) as well as unlimited 4G in France.

In June 2017, Iliad Group had total liabilities of €5.1bn, including debt of €1.9bn. Xavier Niel commented: “We are a long-term investor in the telecoms sector and bring global knowhow to eir. In our businesses in France, Monaco and Switzerland we have consistently delivered investment in infrastructure, while driving down prices for consumers.

“We are delighted to partner with Anchorage Capital and Davidson Kempner and are looking forward to working with the talented eir team to bring more innovation and choice to Irish consumers. We want to invest for the future of Ireland and hope to work closely with the Irish government and ComReg to ensure that people across the country have access to world-class super-fast fixed and mobile broadband.”

Download Iliad Group P&L and Balance Sheet June 2017

The transaction is conditional upon clearance from the European Commission and regulators in Ireland. Chief executive Richard Moat will leave the company upon completion of the transaction.

Eir was advised by law firm Arthur Cox. NJJ and Iliad were advised by law firm A&L Goodbody,  KPMG, Lazard Frères, Paul Hastings LLP and  Goodwin Procter.

Anchorage Capital, Davidson Kempner and GIC were advised by Liontree Advisors and White & Case, with Davidson Kempner and GIC also being advised by Wilkie Farr & Gallagher (UK) and Clifford Chance.

Who is Xavier Niel?

Xavier Niel is an unorthodox French billionaire who happily embodies the working-class hero persona. The 50-year-old Parisian grew up in a tower-block suburb in the south-east of the city. His family didn’t have the aristocratic background that’s de rigueur among the French rich list, and Niel’s CV has no degrees from prestigious universities.

In the early 80s, Niel – a precocious computer fan then in his teens – saw his first business opportunity in the launch of Minitel in France, which was a telephone-enabled online service and a precursor to the world wide web. On the platform, Niel launched an erotic text/chat service dubbed ‘Minitel Rose’.

The service turned out to be a big success for Niel, despite the controversy it created – users racked up huge phone bills while availing of it. Niel tired of Minitel by 1993 and established Worldnet, which was effectively France’s first internet service provider. This venture was sold for €35m in 2003.

In 2000 Niel launched Freebox, a digital box that provided internet access, TV and a phone service. The concept was novel at the time and Niel provided the service at a price that undercut competitors. As Freebox grew, so did Niel’s public persona. His celebrity was helped – or hindered, depending on how you look at it – in 2004 when it was revealed that Niel had been investing in peep shows and sex shops. One of the businesses he invested in was subject to a judicial investigation and was adjudged to be a front for prostitution.

Making money from prostitution is illegal in France, even though the practice itself is not. Having been initially charged with aggravated procuring, the charges against Niel were subsequently dropped. However, he ended up with a two-year suspended sentence for not disclosing his income and not paying taxes. He spent four weeks in jail and paid a $330,000 fine for his transgressions.

That didn’t dent Niel’s business successes. He launched a mobile service called Free Mobile in 2012. It provided unlimited calls, texts and internet access at a very keen price, which clicked with French consumers. Free Mobile had  revenue of nearly €5bn in 2016.

Other Niel ventures included joining a consortium to buy out Le Monde newspaper in 2010, which raised the hackles of Nicholas Sarkozy, no fan of Niel’s past exploits. The acquisition went through regardless and Niel remains a co-owner of the iconic French publication.

Iliad is the parent company of Niel’s Free telecom businesses. He owns 52% of the business and its deputy chair and chief strategy officer. Forbes estimates that Niel’s net worth is €8.3bn. The entrepreneur is also an active venture capitalist, investing in tech companies through Kima Ventures.

Niel also set up a startup incubator in Paris called Station F. Other interests include controlling stakes in Monaco Telecom and Orange Switzerland.

Iliad Disputes

Niel’s buccaneering business style has seen Iliad lock legal horns with various competitors. In May 2014, SFR filed an application with the Paris Commercial Court seeking €493m in damages from Free Mobile, Free and Iliad on the basis that SFR had allegedly suffered as a result of defamatory actions  constituting unfair competition.

Free Mobile, Free and Iliad are contesting SFR’s position in this case and have filed a counterclaim seeking €475m in damages for Free Mobile and €88m for Free. The case has been heard and the parties are awaiting the court’s decision.

In April 2014, Orange filed two court applications concerning various patents. Orange requested the court to order the cessation of alleged acts of infringement and filed a provisional claim for around €250m. Free contested Orange’s position, and requested the court to order Orange to pay €50,000 for abuse of process. In June 2015, the Paris District Court rejected Orange’s claims, a decision Orange is appealing.

In late 2014, Bouygues Telecom filed an application with the Paris Commercial Court, accusing Free of misleading commercial practices. Bouygues Telecom has estimated its alleged losses in relation to the case at €570m. Proceedings are still ongoing.

 

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